<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- ------
Commission file number 33-64140
--------
DAL-TILE INTERNATIONAL INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3548809
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
7834 Hawn Freeway, Dallas, Texas 75217
---------------------------------------
(Address of principal executive office)
(Zip Code)
(214)398-1411
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ---------
As of November 7, 1996, the registrant had outstanding 53,436,476 shares of
voting common stock, par value $0.01 per share.
<PAGE>
DAL-TILE INTERNATIONAL INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements (Unaudited) 3
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 19
Page 2
<PAGE>
DAL-TILE lNTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE & NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 184,386 $117,991 $535,910 $353,947
Cost of goods sold 93,784 55,421 277,240 168,719
------------- ------------- ------------- -------------
Gross profit 90,602 62,570 258,670 185,228
Expenses:
Transportation 12,859 8,459 34,523 24,730
Selling, general and administrative 45,270 32,427 143,710 100,474
Provision for merger integration charge -- -- 9,000 --
Amortization of intangibles 1,401 1,191 4,204 3,574
------------- ------------- ------------- -------------
Total expenses 59,530 42,077 191,437 128,778
------------- ------------- ------------- -------------
Operating income 31,072 20,493 67,233 56,450
Interest expense 10,817 13,897 38,260 41,184
lnterest income 397 192 1,530 1,059
Other expense (income) 352 (164) 805 (2,187)
------------- ------------- ------------- -------------
Income before income taxes and 20,300 6,952 29,698 18,512
extraordinary item
Income tax provision 7,125 781 10,668 7,035
------------- ------------- ------------- -------------
Income before extraordinary item 13,175 6,171 19,030 11,477
Extraordinary item-loss on early
retirement of debt, net of taxes (29,072) -- (29,072) --
------------- ------------- ------------- ------------
Net income (loss) ($15,897) $ 6,171 ($10,042) $11,477
============= ============= ============= ============
lncome before extraordinary
item per common share $ 0.26 $0.21 $0.39 $0.38
Extraordinary item (0.57) -- (0.60) --
------------- ------------- ------------- ------------
Net income (loss) per common share ($0.31) $0.21 ($0.21) $0.33
============= ============= ============= ============
Average outstanding common and
equivalent shares 51,270 30,014 48,567 30,014
============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
September 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $4,331 $72,965
Trade accounts receivable 125,412 103,909
Inventories 127,282 118,811
Prepaid expenses 4,479 3,872
Deferred income taxes 4,710 --
Other current assets 9,710 8,531
------------- ------------
Total current assets 275,924 308,088
Property, plant, and equipment, at cost 231,239 209,996
Less accumulated depreciation 47,139 42,073
------------- ------------
184,100 167,923
Goodwill, net of amortization 158,442 162,016
Finance costs, net of amortization 3,826 6,432
Tradename and other assets 22,866 27,934
------------- ------------
Total assets $645,158 $672,393
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE>
DAL-TILE, INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (continued)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Trade accounts payable $24,076 $ 38,755
Accrued expenses 25,399 27,983
Accrued interest payable 3,096 17,398
Current portion of long-term debt 25,546 47,047
Income taxes payable 1,985 --
Deferred income taxes -- 3,981
Other current liabilities 12,121 20,796
------------- ------------
Total current liabilities 92,223 155,960
Long-term debt 434,769 480,769
Other long-term liabilities 16,112 25,023
Deferred income taxes -- 1,002
Commitments and contingencies
Stockholders' Equity:
Common stock, $.01 par value:
Authorized shares - 200,000,000; issued and
outstanding shares - 53,436,476 121 41
Additional paid-in capital 436,513 334,035
Accumulated deficit (276,046) (266,004)
Currency translation adjustment (58,534) (58,433)
------------- ------------
Total stockholders' equity 102,054 9,639
------------- ------------
Total liabilities and stockholder's equity $645,158 $672,393
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Operating Activities
Net income (loss) ($10,042) $ 11,477
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 17,553 12,913
Extraordinary item 29,072 --
Deferred income tax provision 4,995 3,708
Foreign currency transaction gains (125) (3,769)
Zero coupon note interest expense -- 8,058
Changes in operating assets and liabilities:
Trade accounts receivable (21,426) 4,277
Inventories (7,926) (13,640)
Other assets (2,887) (553)
Trade accounts payable and accrued expenses (11,068) (4,202)
Accrued interest payable (14,302) (8,587)
Other liabilities (16,951) (6,507)
------------- -------------
Net cash (used in) provided by operating activities (33,107) 3,175
INVESTING ACTIVITIES
Expenditures for property, plant, and equipment, net (27,821) (26,631)
------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 102,558 --
Borrowings under previous bank credit facility 52,028 44,241
Borrowings under new bank credit facility 444,000 --
Repayment of long-term debt (563,529) (23,572)
Fees and expenses associated with debt refinancing (42,765) --
------------- -------------
Net cash (used in) provided by financing activities (7,708) 20,669
Effect of exchange rate changes on cash 2 (781)
------------- -------------
Net decrease in cash (68,634) (3,568)
Cash at beginning of period 72,965 12,973
------------- -------------
Cash at end of period $4,331 $ 9,405
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 6
<PAGE>
DAL-TILE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The operating results of Dal-Tile International Inc. and its consolidated
subsidiaries (the "Company") for the three and nine months ended September
30, 1996 reflect the results of operations of Dal-Tile International Inc. and
its consolidated subsidiaries, including the operations of American Olean
Tile Company Inc. ("AO") and certain related assets of the ceramic tile
business of Armstrong World Industries, Inc. ("AWI"). AO and such related
assets were acquired (the "AO Acquisition") by the Company from AWI on
December 29, 1995. Because the Company's results for the three and nine
months ended September 30, 1995 do not reflect the AO Acquisition, the
results for such periods are not directly comparable to 1996 results.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of the financial
position, results of operations, and cash flow have been included. The
results of operations for the nine months ended September 30, 1996, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the December 31, 1995
annual report on Form 10-K of the Company.
The 1995 statement of operations combines selling expenses and general and
administrative expenses to conform to the 1996 presentation.
2. ACQUISITION
On December 29, 1995, the Company completed the AO Acquisition. As part of
the AO Acquisition, AWI paid $28,225,000 in cash (after giving effect to a
post-closing adjustment) to the Company. The AO Acquisition was accounted
for under the purchase method of accounting.
In exchange for the stock, cash and assets contributed as part of the AO
Acquisition, AWI received 37% of the issued and outstanding capital stock of
the Company as of December 31, 1995. The fair value of the net assets
acquired was approximately $134,225,000. The financial statements for 1996
include the financial position and operating results of AO but the operating
results of AO are excluded from the 1995 financial statements.
AO manufactures and markets commercial and residential glazed and unglazed
ceramic tile for sales to contractors, distributors, and home improvement
centers in the United States and Canada.
Page 7
<PAGE>
DAL-TILE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REFINANCING
During the third quarter, the Company completed an initial public offering
(the "Offering") of its common stock and a concurrent private placement of
its common stock to a subsidiary of AWI (the "Private Placement"). The
Offering of 7,316,343 shares of common stock, including the underwriter over
allotment, raised $102,428,802 of gross proceeds with net proceeds, after
underwriter commission and expenses, amounting to $92,557,930. The Private
Placement of 714,286 shares of common stock raised $10,000,000 of proceeds
with total net proceeds from the Offering and Private Placement amounting to
$102,557,930. In connection with the Offering and Private Placement, the
Company effected a recapitilization of its capital stock. Pursuant to a
common stock conversion, all of the classes of the Company's previously
outstanding common stock were converted into 45,404,472 shares of a single
class of common stock. Concurrently with the Offering the company entered
into a new bank credit agreement (the "New Bank Credit Agreement") which
along with the proceeds from the Offering and Private Placement were used to
repay substantially all of the Company's debt (collectively, the
"Refinancing"). The New Bank Credit Agreement includes a term loan of
$275,000,000 and a revolving credit facility of $250,000,000.
The Company used the net proceeds of the Refinancing: (i) to repay
substantially all of its outstanding Zero Coupon Notes at a tender price of
approximately 110% of their accreted value, (the Company having previously
called for redemption approximately 25% of its then outstanding Zero Coupon
Notes;) (ii) to repay in full outstanding borrowings by Dal-Tile's wholly
owned subsidiary, Dal-Tile Group Inc., under the previous bank credit
agreement (the "Previous Bank Credit Agreement"); (iii) to repay $176,000,000
of its Series A Notes and $100,000,000 of its Series B Notes; and (iv) to pay
accrued interest and prepayment premiums on certain debt to be repaid, a
$4,000,000 termination fee in connection with the termination of the
Company's management agreement with AEA Investors Inc. (the "Termination
Fee") and fees and expenses associated with the Refinancing. AEA Investors
Inc. is the manager of DTI Investors LLC, which is a significant stockholder
of the Company.
4. EXTRAORDINARY ITEM
In connection with the refinancing and early extinguishment of debt, the
Company recorded an extraordinary charge of $44,800,000 ($29,072,000, net of
tax), for prepayment premiums on certain debt repaid, the write-off of
existing deferred financing fees and the Termination Fee.
5. EARNINGS PER SHARE
Earnings per share are based on the average number of shares of common stock
outstanding during each period and such shares issuable upon assumed exercise
of stock options, using the treasury stock method, adjusted for stock splits.
The average number of shares used in the calculation of earnings per share
was 51,269,985 and 48,566,856 for the three and nine months ended September
30, 1996, respectively, and 30,014,350 for both the three and nine months
ended September 30, 1995. The average number of shares used in the
calculation of pro forma earnings per share was 55,231,069.
Page 8
<PAGE>
DAL-TILE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVENTORIES
Inventories consist of the following at September 30, 1996 and December 31,
1995 (In Thousands):
September 30, December 31,
1996 1995
---- ----
(Unaudited)
Raw materials $ 15,830 $ 12,224
Work-in-process 3,413 3,567
Finished goods 108,039 103,020
-------- --------
$127,282 $118,811
======== ========
7. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1996 and
December 31, 1995 (In Thousands):
September 30, December 31,
1996 1995
---- ----
(Unaudited)
Term Loan, secured $275,000 $ --
New Revolving Credit Loan, secured 169,000 --
Senior Secured Zero Coupon Notes 136 99,078
Series A Notes payable, unsecured -- 220,000
Series B Notes payable, unsecured -- 100,000
Previous Revolving Credit Loan, unsecured -- 91,197
Other 16,179 17,541
-------- --------
460,315 527,816
Less current portion 25,546 47,047
-------- --------
$434,769 $480,769
======== ========
During the third quarter the Company paid $27,558,410 million out of the cash
proceeds from the AO Acquisition to redeem $32,600,000 aggregate principal
amount at maturity ($25,998,392 aggregate accreted value at the Redemption
Date) of the Zero Coupon Notes at a redemption price of 106% of their
accreted value on the Redemption Date.
In connection with the New Bank Credit Agreement, the Company will be
required to make quarterly amortization payments on the $275,000,000 term
loan commencing March 1, 1997 through December 31, 2002 at various scheduled
amounts. Borrowings under the new $250,000,000 revolving credit facility
($169,000,000 outstanding at September 30, 1996) are payable in full on
December 31, 2002. Borrowings under the New Bank Credit Agreement bear
interest at variable rates based on Eurodollar rates or prime rate and is
secured by the capital stock of each Material Subsidiary (as defined in the
agreement). Under the New Bank Credit Agreement the Company is required,
among other things, to maintain certain financial covenants and has
restrictions on incurring additional debt and limitations on cash dividends.
A commitment fee at a rate per annum based on a pricing grid is payable
quarterly.
Page 9
<PAGE>
DAL-TILE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The income tax provision reflects effective tax rates of 35% and 11% for the
three months ended September 30, 1996 and 1995 and 34% and 38% for the nine
months ended September 30, 1996 and 1995, respectively.
9. MERGER INTEGRATION CHARGES
In the first quarter of 1996, the Company recorded a pre-tax merger
integration charge of $9,000,000 for the closings of duplicative sales
centers, duplicative distribution centers, manufacturing facility closings
and severance costs associated with the elimination of overlapping
positions. The majority of the charge is related to lease commitments
extending beyond 1996.
10. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations for
the third quarter 1996 reflects the effect of adjustments to the unaudited
historical consolidated statement of operations of the Company necessary to
give pro forma effect to the Refinancing. The unaudited pro forma statement
of operations reflects the Refinancing (including the Offering and the
Private Placement) as if it took place at the beginning of the third quarter
and therefore adds back the interest expense savings that would have been
realized from the beginning of the quarter rather than the actual
transaction date in August. It also excludes the extraordinary charge
reflected in the unaudited historical consolidated statement of operations
for loss on early extinguishment of debt.
Management believes the assumptions used provide a reasonable basis on which
to present the pro forma financial data. The unaudited pro forma
consolidated statement of operations are provided for informational purposes
only and should not be construed to be indicative of the Company's statement
of operations had the Refinancing taken place at the beginning of the third
quarter, and are not intended to project the Company's statement of
operations or its financial position for any future period or any future
date.
The following Unaudited Pro Forma Consolidated statement of operations
should be read in conjunction with the Consolidated Financial Statements,
the related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this document.
Page 10
<PAGE>
DAL-TILE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED F1NANCIAL STATEMENTS (continued)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net sales $ 184,386 -- $184,386
Cost of goods sold 93,784 -- 93,784
----------- ----------- ----------
Gross Profit 90,602 -- 90,602
Expenses:
Transportation 12,859 -- 12,859
Selling, general and administrative 45,270 -- 45,270
Provisions for merge integration charge - --
Amortization of intangibles 1,401 -- 1,401
----------- ----------- ----------
Total expenses 59,530 -- 59,530
----------- ----------- ----------
Operating income 31,072 -- 31,072
Interest expense 10,817 (2,516)(a) 8,301
Interest income 397 -- 397
Other expense (income) 352 352
----------- ----------- ----------
Income before income taxes and extraordinary item 20,300 2,516 22,816
Income tax provision 7,125 883 (b) 8,008
----------- ----------- ----------
Income before extraordinary item 13,175 1,633 14,808
Extraordinary item-loss on early
retirement of debt, net of taxes (29,072) 29,072 (c)
----------- ----------- ----------
Net income (loss) ($15,897) $30,705 $14,808
=========== =========== ==========
Income before extraordinary
item per common share $0.26 $0.27 (d)
Extraordinary item (0.57)
----------- ----------
Net income (loss) per common share ($0.31) $0.27
=========== ==========
Average outstanding common and
equivalent shares 51,270 55,231
=========== ==========
</TABLE>
(a) To reduce interest expense as if the refinancing of substantially all of the
Company's existing debt had taken place at the beginning of the third
quarter. The computation reflects interest savings resulting from the new
credit agreement and reduced indebtedness from application of initial public
offering proceeds and other refinancing transactions.
(b) Represents estimated pro forma net impact to tax expense resulting from the
pro forma adjustments.
(c) To eliminate the one time extraordinary charge for loss on early
extinguishment of debt pertaining to debt repaid under the refinancing
transactions.
(d) Pro forma earnings per share are computed using the weighted average number
of common shares and common share equivalents outstanding during the period,
assuming the shares from the initial public offering were outstanding for
the full period presented.
Page 11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the three and
nine months ended September 30, 1996 compared with the three and nine months
ended September 30, 1995 for Dal-Tile International Inc. and its consolidated
subsidiaries (the "Company"). The Company's operating results for the three and
nine months ended September 30, 1996 reflect the results of operations of
American Olean Tile Company, Inc. ("AO") and certain related assets of the
ceramic tile business of Armstrong World Industries, Inc. ("AWI"). AO and such
related assets were acquired (the "AO Acquisition") by the Company from AWI on
December 29, 1995. Because the Company's results for the three and nine months
ended September 30, 1995 do not reflect the AO Acquisition, the results for such
periods are not directly comparable to the 1996 results.
On December 29, 1995, the Company completed the AO Acquisition. As part of the
AO Acquisition, AWI paid $28.2 million in cash (after giving effect to a post-
closing adjustment) to the Company. The AO Acquisition was accounted for under
the purchase method of accounting.
In exchange for the stock, cash and assets contributed as part of the AO
Acquisition, AWI received 37% of the issued and outstanding capital stock of the
Company as of December 31, 1995. The fair value of the net assets acquired was
approximately $134.2.
As a result of the AO Acquisition, the 1996 results include the results of
operations of AO. After the consummation of the AO Acquisition, management
began to execute the Company's merger integration plan. In connection with the
integration plan, the Company consolidated 46 duplicative sales service centers,
restructured and consolidated its sales force, closed certain manufacturing
facilities and is in the process of consolidating its distribution system. In
addition, most general and administrative functions have been consolidated.
Consequently, the reported results of operations for the Company for the three
and nine months ended September 30, 1996 are not directly comparable to the
reported results of operations for the Company for the three and nine months
ended September 30, 1995.
During the third quarter the Company completed an initial public offering (the
"Offering") of its common stock and a concurrent private placement of its common
stock to a subsidiary of AWI (the "Private Placement") at a per share price
equal to the Offering. The Offering of 7,316,343 shares of common stock,
including the underwriter over allotment, raised $102.4 million of gross
proceeds with net proceeds, after underwriter commission and expenses, amounting
to $92.6 million. The Private Placement of 714,286 shares of common stock raised
$10.0 million of proceeds with total net proceeds from the Offering and Private
Placement amounting to $102.6 million. In connection with the Offering and
Private Placement, the Company effected a recapitilization of its capital stock.
Pursuant to a common stock conversion, all of the classes of the Company's
previously outstanding common stock were converted into 45,404,472 shares of a
single class of common stock. Concurrently with the Offering the Company entered
into a new bank credit agreement (the "New Bank Credit Agreement") which along
with the proceeds from the Offering and Private Placement were used to repay
substantially all of the Company's debt (collectively, the "Refinancing").
Page 12
<PAGE>
Net Sales
Net sales for the third quarter increased from $118.0 million in 1995 to $184.4
million in 1996, an increase of $66.4 million or 56.2%. Net sales for the nine
months ended September 30, 1996 increased to $535.9 million from $353.9 million
for the nine months ended September 30, 1995, an increase of $182.0 million or
51.4%. The increase in net sales for both the three and nine months ended
September 30, 1996 as compared with the same periods in 1995 was due principally
to the inclusion of AO's operations in 1996 and increased shipments to home
center retailers and independent distributors. These increases have been
partially offset by the consolidation of 46 duplicative sales centers.
Gross Profit
Gross profit increased $28.0 million, or 44.7%, to $90.6 million in the third
quarter of 1996 from $62.6 million in the third quarter of 1995. For the nine
months ended September 30, 1996 gross profit increased from $185.2 million to
$258.7 million, an increase of $73.5 million or 39.7%. The increase in gross
profit is principally the result of the increase in net sales.
Gross margin decreased in the third quarter of 1996 to 49.1% from 53.0% in the
third quarter of 1995 and decreased for the nine months ended September 30, 1996
to 48.3% from 52.3% for the comparable period in 1995. The decrease in gross
margin for the third quarter is principally due to the increased presence in the
independent distributor channel as a result of the AO Acquisition and increased
sales to home centers. Sales through these channels carry lower gross margins
than sales made through the Company's sales centers, but due to lower operating
expense levels, comparable operating margins are achieved. The decrease for the
nine months ended September 30, 1996 is attributable to increased sales to the
independent distributor and home center channels as well as the higher cost
production facilities acquired as part of the AO Acquisition. These facilities
were closed in March 1996 and production shifted to lower cost manufacturing
plants.
Expenses
Expenses increased to $59.5 million in the third quarter of 1996 from $42.1
million in the third quarter of 1995 and increased to $191.4 million for the
nine months ended September 30, 1996 from $128.8 million for the nine months
ended September 30, 1995. The increase in expenses is primarily due to the
inclusion of AO's operations. In addition, results for the first quarter of
1996 include $9.0 million of non-recurring merger integration charges,
contributing to the increase for the nine months ended September 30, 1996.
Expenses as a percent of sales decreased from 35.7% in the third quarter of 1995
to 32.3% in the third quarter of 1996 and decreased from 36.4% for the nine
months ended September 30, 1995 to 35.7% for the comparable period in 1996.
Excluding non-recurring merger integration charges, expenses for the nine months
ended September 30, 1996 decreased to 34.0% of sales as compared to 36.4% for
the comparable period in 1995. The decrease in expenses as a percent of sales
for the third quarter of 1996 and the nine months ended September 30, 1996
(excluding merger integration charges) as compared to the same periods in 1995,
respectively, are due to consolidation savings achieved by integrating sales
forces, closing duplicative sales centers and consolidating administrative
functions. Additionally, sales made to independent distributors require lower
operating expense levels which offset the lower gross margins generated through
this distribution channel. These savings were offset in part by increased
advertising and sample costs to increase brand name recognition and increased
information systems costs for integration to one system.
Page 13
<PAGE>
Merger Integration Charges
In the first quarter of 1996, the Company recorded a pre-tax non-recurring
merger integration charge of $9.0 million for the closing of duplicative sales
centers, consolidation of the Company's distribution system, manufacturing
facility closings and severance costs associated with the elimination of
overlapping positions. The majority of the charge is related to lease
commitments extending beyond 1996.
Operating Income
Operating income increased to $31.1 million in the third quarter of 1996 from
$20.5 million in the third quarter of 1995 and increased to $67.2 million for
the nine months ended September 30, 1996 from $56.5 million for the nine months
ended September 30, 1995. Operating income (excluding merger integration
charges) increased to $76.2 million for the nine months ended September 30, 1996
from $56.5 million for the comparable period in 1995. Operating income for both
the three months and nine months ended September 30, 1996 increased as a result
of the AO Acquisition and related cost savings.
Net Interest Expense
Net interest expense decreased to $10.4 million in the third quarter of 1996
from $13.7 million in the third quarter of 1995 and decreased to $36.7 million
for the nine months ended September 30, 1996 from $40.1 for the comparable
period in 1995. Net interest expense has decreased due to reduced debt levels
as a result of the third quarter Offering and Private Placement whose proceeds
were used to reduce debt. Net interest expense has also decreased as a result
of lower borrowing rates from the Refinancing.
Income Taxes
The income tax provision reflects effective tax rates of 35% and 11% for the
three months ended September 30, 1996 and 1995 and 34% and 38% for the nine
months ended September 30, 1996 and 1995, respectively.
Income before Extraordinary Item
Income before extraordinary item increased to $13.2 million in the third quarter
of 1996 from $6.2 million in the third quarter of 1995 and increased to $19.0
million for the nine months ended September 30, 1996 from $11.5 million for the
nine months ended September 30, 1995. Excluding non-recurring merger integration
charges, income before extraordinary item increased to $24.8 million for the
nine months ended September 30, 1996 from $11.5 million for the comparable
period in 1995. The increase in income before extraordinary item (excluding
merger integration charges) is due to the increase in operating income and
decrease in net interest expense offset in part by transaction gain reductions
in 1996 as a result of a stable peso during the first six months of 1996. The
$7.0 million increase in income before extraordinary item for the third quarter
of 1996 as compared to 1995 was also offset in part by the higher effective tax
rate in 1996.
Extraordinary Item
In connection with the refinancing and early extinguishment of debt, the Company
recorded an extraordinary charge of $44.8 million ($29.1 million, net of tax)
for prepayment premiums on certain debt repaid, the write-off of existing
deferred financing fees and a termination fee in connection with the termination
of the Company's management agreement with AEA Investors Inc. (the "Termination
Fee"). AEA Investors Inc. is the manager of DTI Investors LLC, which is a
significant stockholder of the Company.
Page 14
<PAGE>
Net Income (Loss)
As a result of the extraordinary charge, the Company reported a net loss of
$15.9 million in the third quarter of 1996 as compared to net income of $6.2
million in the third quarter of 1995. For the nine months ended September 30,
1996 net loss was $10.0 million, as a result of the extraordinary charge and the
first quarter non-recurring merger integration charge, and net income for the
nine months ended September 30, 1995 was $11.5 million. Excluding non-recurring
merger integration charges and the third quarter extraordinary item, net income
for the nine months ended September 30, 1996 would have been $24.8 million as
compared to net income for the comparable period in 1995 of $11.5 million.
Pro-forma Net Income
Pro-forma net income for the third quarter excludes the one time charge for
early retirement of debt, adds back the interest expense savings that would have
been realized had the Company completed its refinancing at the beginning of the
quarter rather than in late August and increases the average number of shares
outstanding to reflect the issuance of additional shares in the Company's
initial public offering. On a pro-forma basis net income increased to $14.8
million for the third quarter of 1996 from $6.2 million in the third quarter of
1995 as a result of the interest expense savings.
Liquidity and Capital Resources
Cash flow from operations and funds available under the Company's revolving
credit facility continue to provide the Company with liquidity and capital
resources for working capital requirements, capital expenditures, expansion and
debt service.
Cash used in operating activities was $33.1 million for the nine months ended
September 30, 1996 and cash provided by operating activities was $3.2 million
for the same period in 1995. Cash was used in the nine months ended September
30, 1996 to fund several areas of working capital. Increases in trade accounts
receivable resulted from increased sales volume in the last half of the quarter
and extended terms granted to new distributors. Inventory increased due to
receipts of imported product not yet distributed to sales centers. Cash was also
used to fund payments of trade accounts payable as a result of the timing of
payment to vendors and to pay accrued interest in connection with the
Refinancing.
Expenditures for property, plant and equipment were $27.8 million for the nine
months ended September 30, 1996. The expenditures were used to fund expansion of
the floor and mosaic production lines in Monterey, Mexico, purchase a floor tile
plant in Mt. Gilead, North Carolina for $3.5 million, routine capital
improvements and integration of the Company's and AO's management information
systems. During 1997 the Company plans to spend approximately $60.0 million to
expand its manufacturing capacity, improve manufacturing efficiencies, continue
integration of management information systems, leasehold improvements for new
sales centers, expansion of a regional distribution center, and routine capital
improvements. As of September 30, 1996 the company had entered into commitments
of approximately $8.0 million for these expansion plans.
During the third quarter, the Company completed the Refinancing as discussed
above. The Refinancing provides the Company with financial and operating
flexibility to extend the amortization of its indebtedness and to significantly
reduce its interest expense.
Page 15
<PAGE>
In connection with the Refinancing, the Company paid $27.6 million out of the
cash proceeds from the AO Acquisition to redeem $32.6 million aggregate
principal amount at maturity ($26.0 million aggregate accreted value at the
Redemption Date) of the Zero Coupon Notes at a redemption price of 106% of their
accreted value on the Redemption Date.
The Company used the net proceeds of the Refinancing: (i) to repay
substantially all of its outstanding Zero Coupon Notes at a tender price of
approximately 110% of their accreted value, the Company having previously called
for redemption approximately 25% of its then outstanding Zero Coupon Notes; (ii)
to repay in full outstanding borrowings by Dal-Tile's wholly owned subsidiary,
Dal-Tile Group Inc., under the previous bank credit agreement (the "Previous
Bank Credit Agreement"); (iii) to repay $176.0 million of its Series A Notes and
$100 million of its Series B Notes; and (iv) to pay accrued interest and
prepayment premiums on certain debt to be repaid, the Termination Fee and fees
and expenses associated with the Refinancing.
In connection with its tender for substantially all of its Zero Coupon Notes,
not otherwise called for redemption, the Company solicited sufficient consents
to amend the indenture pursuant to which the Zero Coupon Notes were issued.
Among other things such amendments eliminated substantially all of the
restrictive covenants in such indenture and terminated the pledge agreement
pursuant to which all of the outstanding stock of Dal-Tile Group Inc. had been
pledged.
In connection with the Refinancing, the Company recorded an extraordinary charge
of $44.8 million ($29.1 million net of tax), for the prepayment premiums on
certain debt repaid, write off of existing deferred financing fees and the
Termination Fee.
Cash used in financing activities was $7.7 million for the nine months ended
September 30, 1996, which reflects borrowings under the Company's Previous Bank
Credit Agreement to repay $44.0 million in principal under its Series A Notes
and $17.0 million in semi-annual interest on the Series A Notes and Series B
Notes. Cash was provided by the Offering and Private Placement and borrowings
under the New Bank Credit Agreement which were used to repay substantially all
of the Company's debt and fees and expenses associated with the Refinancing.
The New Bank Credit Agreement includes a term loan of $275.0 million and a
revolving credit facility of $250.0 million. The Company will be required to
make quarterly amortization payments on the term loan commencing March 1, 1997
through December 31, 2002 at various scheduled amounts. Borrowings under the
revolving credit facility are payable in full on December 31, 2002. Borrowings
under the New Bank Credit Agreement bear interest at variable rates based on
Eurodollar rates or prime rate and are secured by the capital stock of each
Material Subsidiary (as defined in the agreement). Under the New Bank Credit
Agreement the Company is required, among other things, to maintain certain
financial covenants and has restrictions on incurring additional debt and
limitations on cash dividends. The Company was in compliance with such covenants
at September 30, 1996. A commitment fee at a rate per annum based on a pricing
grid is payable quarterly.
The Company believes that existing cash balances and cash flow from operating
activities together with borrowings available under the New Bank Credit
Agreement will be sufficient to fund future working capital needs, capital
spending requirements, expansion plans and debt service requirements of the
Company in the foreseeable future. Additional availability under the revolving
credit facility was $81.0 million at September 30, 1996.
Page 16
<PAGE>
The Company estimates total cash AO merger integration costs for 1996 of
approximately $22.1 million pertaining to severance, lease commitments and shut
down costs for manufacturing, distribution and corporate facility
consolidations, as well as elimination of duplicate and overlapping positions.
Of this amount, the Company incurred cash costs for the nine months ended
September 30, 1996 of $18.1 million.
The peso devaluation and economic uncertainties in Mexico are not expected to
have a significant impact on the Company's liquidity. Since the Company has no
peso-based borrowings, high interest rates in Mexico are not expected to
directly affect the Company. The Company may encounter changes in its credit
terms to Mexican customers; however, the consolidated impact is not expected to
be material. Since the Company's Mexican subsidiaries incur more peso-
denominated costs than revenues generated in pesos, the effect of any peso
devaluation on income from operations has been favorable to the Company.
The Company is involved in various judicial and administrative proceedings
relating to environmental matters. The Company is currently engaged in
environmental investigation and remediation programs at certain sites relating
to activities prior to the AO Acquisition and prior to January 9, 1990 (when AEA
Investors Inc., a privately held corporation headquartered in New York, arranged
for Dal-Tile International Inc. to acquire all of the outstanding capital stock
of Dal-Tile Corporation, its affiliated companies and certain related assets
(the "AEA Acquisition")). The Company maintains a reserve for remediation
relating to environmental conditions and activities existing prior to the AEA
Acquisition, and is entitled to indemnification with respect to certain
expenditures incurred in connection with environmental matters. It does not
expect the ultimate liability with respect to such investigation and remediation
activities to have a material effect on the Company's liquidity and financial
condition. In addition, with respect to the investigation and remediation
programs relating to environmental conditions and activities prior to the AO
Acquisition, the Company believes that, based on currently available information
and the terms and conditions of AWI's indemnification obligations under the
Stock Purchase Agreement dated as of December 21, 1995, by and among the
Company, Armstrong Enterprises, Inc., Armstrong Cork Finance Corporation and
AWI, any liability of AO that is reasonably likely to arise with respect to such
sites would not result in a material adverse effect on the Company.
The United States is a party to GATT. Under GATT, the United States currently
imposes import duties on ceramic tile outside North America countries at 17%, to
be reduced ratably to 8 1/2% by 2005. Accordingly, GATT may stimulate
competition from manufacturers outside North America who now export, or who may
seek to export, ceramic tile to the United States. The Company cannot predict
with certainty the effect that GATT may have on the Company's operations.
Effects of Inflation
The Company believes it has generally been able to increase selling prices and
productivity to offset increases in costs resulting from inflation in the U.S.
and Mexico. Inflation has not had a material impact on the Company's results of
operations during the nine months ended September 30, 1996 and 1995.
Approximately 80% of the Company's inventory is valued using the LIFO inventory
accounting method. Therefore, current costs are reflected in cost of sales
rather than in inventory balances. The impact of inflation in Mexico has not
had a significant impact on the third quarter 1996 and nine months ended
September 30, 1996 operating results, however, the future impact is uncertain at
this time.
Page 17
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
A consent in writing of stockholders of the Registrant, dated as of
July 17, 1996, was signed on behalf of all of the stockholders
entitled to vote thereon, whereby the stockholders approved the
Agreement and Plan of Merger by and among the Registrant, DTI
Investors LLC and DTI Merger Company, providing for the merger of DTI
Merger Company with and into the Registrant, with the Registrant
surviving.
A consent in writing of stockholders of the Registrant, dated as of
August 14, 1996 was signed on behalf of all of the stockholders
entitled to vote thereon, whereby the stockholders approved the Second
Amended and Restated Certificate of Incorporation of the Registrant.
Item 5. Other Information
Cautionary Statement for purposes of "Safe Harbor Provisions" of the
Private Securities Litigation Reform Act of 1995.
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to risks,
uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward looking statements. Potential risks and uncertainties include,
but are not limited to, the impact of competitive pressures and
changing economic conditions on the Company's business and its
dependence on residential and commercial construction activity,
uncertainties relating to the realization of benefits expected from
the integration of AO's operations, the fact that the Company is
highly leveraged, currency fluctuations and other factors relating to
the Company's foreign manufacturing operations, the impact of pending
reductions in tariffs and custom duties, and environmental laws and
other regulations.
Page 18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
2.1 Agreement and Plan of Merger, among Dal-Tile International Inc.
DTI Investors LLC and DTI Merger Company, dated as of August 7,
1996.
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated By-laws of the Registrant. (Filed as Exhibit
3.2 to the Registrant's Registration Statement of Form S-1 No.
333-5069 and incorporated herein by reference).
10.1 Credit and Guarantee Agreement, dated August 14, 1996 among Dal-
Tile International Inc., Dal-Tile Group Inc., the several banks,
financial institutions and other entities from time to time party
thereto, Credit Suisse as Documentation Agent, Goldman Sachs
Credit Partners L.P., as Syndication Agent, and the Chase
Manhattan Bank as Administrative Agent.
10.2 Pledge Agreement dated as of October 4, 1996, made by Dal-Tile
Group Inc. in favor of The Chase Manhattan Bank, as Administrative
Agent, relating to the pledge of Common Stock of Dal-Tile Mexico,
S.A. de C.V.
10.3 Pledge Agreement dated as of August 14, 1996, made by Dal-Tile
International Inc. in favor of The Chase Manhattan Bank, as
Administrative Agent, relating to the pledge of Common Stock of
Dal-Tile Group Inc.
10.4 Pledge Agreement dated as of August 14, 1996, made by Dal-Tile
Group Inc. in favor of The Chase Manhattan Bank, as Administrative
Agent, relating to the pledge of Common Stock of Dal-Tile
Corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
Page 19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAL-TILE INTERNATIONAL INC.
---------------------------
(Registrant)
Date:
November 7, 1996 /s/ CARLOS E. SALA
- ---------------- -------------------------------------
Carlos E. Sala
Executive Vice President, Chief Financial
Officer and Treasurer
Page 20
<PAGE>
EXHIBIT 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
DAL-TILE INTERNATIONAL INC.,
DTI INVESTORS LLC,
and
DTI MERGER COMPANY
Dated as of August 7, 1996
================================================================================
<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Agreement..............................................Preamble
Certificate of Merger..................................Section 1.3
Closing................................................Section 1.2
Closing Date...........................................Section 1.2
Company................................................Preamble
DGCL...................................................Section 1.1
Dissenting Stockholders................................Section 4.1(a)
Effective Time.........................................Section 1.3
Investors..............................................Preamble
LLC Units..............................................Section 4.1(a)
Merger.................................................Section 1.1
Merger Sub.............................................Preamble
Shares.................................................Section 4.1(a)
Surviving Corporation..................................Section 1.1
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
---------
August 7, 1996, by and among Dal-Tile International Inc., a Delaware
corporation (the "Company"), DTI Investors LLC, a Delaware limited liability
-------
company ("Investors") and DTI Merger Company ("Merger Sub"), a Delaware
--------- ----------
corporation which is owned 63% by Investors and 37% by Armstrong Enterprises,
Inc.
WHEREAS, the board of directors of each of the Company and Merger Sub
and the Members of Investors each have determined that it is in the best
interest of their respective stockholders or members to effect the transactions
contemplated hereby; and
WHEREAS, the board of directors and the holders of the Class B common
stock of the Company, the board of directors and the stockholders of Merger Sub
and the Members of Investors each have approved the merger of Merger Sub with
and into the Company in accordance with applicable law, upon the terms and
subject to the conditions set forth herein; and
WHEREAS, the Company has issued and outstanding 1,595,238 shares of
Class A Common Stock, 15,873 shares of Class B Common Stock, 495,254 shares of
Class C Common Stock, 1,587,302 shares of Class D Common Stock, 198,413 shares
of Class E Common Stock, and 198,413 shares of Class F Common Stock; and
WHEREAS, Merger Sub has issued and outstanding 100 shares of common
stock,
NOW, THEREFORE, in consideration of the foregoing, and of the
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER;
THE CLOSING; EFFECTIVE TIME
Section 1.1. The Merger. Subject to the terms and conditions of this
----------
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
-----------
be merged with and into the Company in accordance with this Agreement and the
separate corporate existence of Merger Sub shall thereupon cease (the "Merger").
------
The Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to
--------- -----------
be governed by the laws of the State of Delaware, and the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger
<PAGE>
shall have the effects specified in the Delaware General Corporation Law (the
"DGCL") and, to the extent relevant, the Delaware Limited Liability Company Act.
----
Section 1.2. The Closing. Subject to the terms and conditions of
-----------
this Agreement, the closing of the Merger (the "Closing") shall take place at
-------
the offices of Fried, Frank, Harris, Shriver & Jacobson, at 9:00 a.m., local
time, on August 12, 1996, or at such other time, date or place as is agreed to
in writing by the parties hereto. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
------------
Section 1.3. Effective Time. On the Closing Date, immediately
--------------
following the Closing, the parties hereto shall cause a certificate of merger
meeting the requirements of Section 251 of the DGCL (the "Certificate of
--------------
Merger") to be properly executed and filed in accordance with such section. The
- ------
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware in accordance with the DGCL or
at such later time as the parties hereto shall have agreed upon and designated
in such filing as the effective time of the Merger (the "Effective Time").
--------------
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
Section 2.1. Certificate of Incorporation. The Restated Certificate
----------------------------
of Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation,
until duly amended in accordance with the terms thereof and the DGCL.
Section 2.2. By-Laws. The By-Laws of the Company in effect at the
-------
Effective Time shall be the By-Laws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the DGCL.
ARTICLE 3
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
Section 3.1. Directors. The directors of the Company immediately
---------
prior to the Effective Time shall, from and after the Effective Time, be the
directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-Laws.
2
<PAGE>
Section 3.2. Officers. The officers of the Company immediately prior
--------
to the Effective Time shall, from and after the Effective Time, be the officers
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and By-
Laws.
ARTICLE 4
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
Section 4.1. Conversion or Cancellation of Shares. The manner of
------------------------------------
converting or canceling shares of the Company and Merger Sub in the Merger shall
be as follows:
(a) At the Effective Time, each share of Class A, Class B, Class C,
Class D, Class E and Class F Common Stock, each with a par value $0.01 per share
(the "Shares"), of the Company issued and outstanding immediately prior to the
------
Effective Time (other than Shares (i) which are owned by any stockholder of
Merger Sub or (ii) which are held by stockholders ("Dissenting Stockholders")
-----------------------
exercising appraisal rights with respect to such Shares pursuant to Section 262
of the DGCL) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one Class A, Class B, Class C, Class D,
Class E or Class F Unit, respectively, representing membership interests in
Investors (the "LLC Units"). All such Shares, by virtue of the Merger and
---------
without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall thereafter cease to
have any rights with respect to such Shares, except the right, if any, to
receive certificates representing the appropriate LLC Units or the right, if
any, to receive payment from the Surviving Corporation of the "fair value" of
such Shares as determined in accordance with Section 262 of the DGCL.
(b) At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time and owned by any stockholder of Merger
Sub immediately prior to the Effective Time, shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
shall be canceled and retired and shall cease to exist.
(c) At the Effective Time, each share of common stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Merger Sub or the holders of such Shares, be converted into 15,952.38 shares
of Class A Common Stock, 158.73 shares of Class B Common Stock, 4,952.54 shares
of Class C Common Stock,
3
<PAGE>
15,873.02 shares of Class D Common Stock, 1,984.13 shares of Class E Common
Stock and 1,984.13 shares of Class F Common Stock, each par value $0.01 per
share, of the Surviving Corporation. It is intended that the number of the
shares of Class A Common Stock, Class B Common Stock, Class C Common Stock,
Class D Common Stock, Class E Common Stock and Class F Common Stock resulting
from such conversion shall be rounded to the nearest whole number of shares held
by each holder thereof, with the result that (1) the 37 shares of common stock
of Merger Sub held by Armstrong Enterprises, Inc. immediately prior to the
Effective Time shall be converted (in the aggregate) into 590,238 shares of
Class A Common Stock, 5,873 shares of Class B Common Stock, 183,244 shares of
Class C Common Stock, 587,302 shares of Class D Common Stock, 73,413 shares of
Class E Common Stock and 73,413 shares of Class F Common Stock, each par value
$0.01 per share, of the Surviving Corporation, and (2) the 63 shares of common
stock of Merger Sub held by Investors immediately prior to the Effective Time
shall be converted (in the aggregate) into 1,005,000 shares of Class A Common
Stock, 10,000 shares of Class B Common Stock, 312,010 shares of Class C Common
Stock, 1,000,000 shares of Class D Common Stock, 125,000 shares of Class E
Common Stock, and 125,000 shares Class F Common Stock, each par value $0.01 per
share, of the Surviving Corporation.
(d) At the Effective Time, each outstanding option to purchase Class A
Common Stock of the Company shall continue under the same terms and conditions
as in effect prior to the Merger, and shall constitute options to purchase Class
A Common Stock of the Surviving Corporation.
Section 4.2. Dissenters' Rights. If any Dissenting Stockholder shall
------------------
fail to perfect or shall have effectively lost the right to dissent, the Shares
held by such Dissenting Stockholder shall thereupon be treated as though such
Shares had been converted into LLC Units pursuant to Section 4.1.
-----------
Section 4.3. Transfer of Shares After the Effective Time. No
-------------------------------------------
transfers of Shares which are issued and outstanding prior to the Effective Time
shall be made on the stock transfer books of the Surviving Corporation at or
after the Effective Time.
ARTICLE 5
COVENANTS
Section 5.1. Reasonable Efforts; Other Actions. Subject to the terms
---------------------------------
and conditions herein provided, each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done as promptly as practicable, all things necessary, proper or
advisable under applicable laws to consummate and make effective the
transactions contemplated by this Agreement, including obtaining any
governmental or other consents, transfers, orders, qualifications, waivers,
authorizations, exemptions and approvals, providing all notices and making all
4
<PAGE>
registrations, filings and applications necessary or desirable for the
consummation of the transactions contemplated herein, including, without
limitation, the execution and delivery of all agreements or other documents
contemplated hereunder to be so executed and delivered.
Section 5.2. Information Statement The Company will cause a notice
---------------------
of merger and information statement to be sent, prior to the Effective Time, to
the stockholders of the Company pursuant to Section 262(d)(2) of the DGCL.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Investors and Merger Sub
as follows:
Section 6.1. Organization and Standing. The Company is a
-------------------------
corporation, duly organized, validly existing and in good standing under the
laws of Delaware.
Section 6.2. Authority. (a) The Company has all requisite power and
---------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated herein. The execution and delivery of this Agreement
and the consummation of the transactions contemplated herein by the Company has
been duly authorized by all necessary action of the Company.
(b) This Agreement has been duly and validly executed and delivered by
the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws of general applicability relating to or affecting creditors'
rights and to general principles of equity.
(c) The execution and delivery of this Agreement by the Company does
not, and the consummation of the transactions contemplated herein will not, (i)
violate or conflict with its certificate of incorporation or by-laws, (ii)
constitute a breach or default or give rise to any lien or third party right of
termination under any material agreement, understanding or undertaking to which
it is a party or by which it is bound, (iii) violate any provision of any
applicable law, rule or regulation to which the Company, is subject, or (iv)
violate any order, judgment or decree applicable to the Company, except, in the
case of clauses (ii), (iii) and (iv) hereof, as would not have a material
adverse effect on the ability of the Company to consummate the transactions
contemplated herein.
5
<PAGE>
Section 6.3. Consents and Approvals. Neither the execution and
----------------------
delivery of this Agreement by the Company nor the consummation of the
transactions contemplated herein will require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority on the part of the Company.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
OF INVESTORS AND MERGER SUB
Each of Investors and Merger Sub hereby represents and warrants to the
Company as follows:
Section 7.1. Organization and Standing. Investors is a limited
-------------------------
liability company and Merger Sub is a corporation, each of which is duly
organized, validly existing and in good standing under the laws of Delaware.
Section 7.2. Authority. (a) Each of Investors and Merger Sub has
---------
all requisite power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated herein. The execution and delivery of
this Agreement and the consummation of the transactions contemplated herein by
each of Investors and Merger Sub have been duly authorized by all necessary
action of each of Investors and Merger Sub.
(b) This Agreement has been duly and validly executed and delivered by
each of Investors and Merger Sub and constitutes a valid and binding agreement
of each of Investors and Merger Sub, enforceable against each in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.
(c) The execution and delivery of this Agreement by each of Investors
and Merger Sub do not, and the consummation of the transactions contemplated
herein will not, (i) violate or conflict with, respectively, its certificate of
formation and operating agreement or its certificate of incorporation and by-
laws, (ii) constitute a breach or default or give rise to any lien or third
party right of termination under any material agreement, understanding or
undertaking to which it is a party or by which it is bound, (iii) violate any
provision of any applicable law, rule or regulation to which Investors or Merger
Sub is subject, or (iv) violate any order, judgment or decree applicable to
Investors or Merger Sub, except, in the case of clauses (ii), (iii) and (iv)
hereof, as would not have a material adverse effect on the ability of Investors
or Merger Sub to consummate the transactions contemplated herein.
6
<PAGE>
Section 7.3. Consents and Approvals. Neither the execution and
----------------------
delivery of this Agreement by each of Investors and Merger Sub nor the
consummation of the transactions contemplated herein will require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority on the part of Investors or Merger Sub.
ARTICLE 8
TERMINATION
Section 8.1. Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated and the Merger may be abandoned at any time prior to the Effective
Time by the mutual written consent of Investors, Merger Sub and the Company.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1. Notices. Any notice required to be given hereunder
-------
shall be sufficient if in writing, and sent by facsimile transmission and by
courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
(a) If to the Company: (b) If to Merger Sub:
Howard I. Bull Christine J. Smith, Esq.
Dal-Tile International Inc. AEA Investors Inc.
7834 Haven Freeway 65 East 55th Street
Dallas, Texas 75217 New York, NY 10022
Facsimile: (214) 309-4300 Facsimile: (212) 888-1459
With a copy to: With a copy to:
Frederick H. Fogel, Esq. Frederick H. Fogel, Esq.
Fried, Frank, Harris, Shriver & Fried, Frank, Harris, Shriver &
Jacobson Jacobson
One New York Plaza One New York Plaza
New York, NY 10004 New York, NY 10004
Facsimile: (212) 859-4000 Facsimile: (212) 859-4000
7
<PAGE>
With a copy to:
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, NY 10022
Facsimile: (212) 888-1459
(c) If to Investors:
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, NY 10022
Facsimile: (212) 888-1459
With a copy to:
Frederick H. Fogel, Esq.
Fried, Frank, Harris, Shriver &
Jacobson
One New York Plaza
New York, NY 10004
Facsimile: (212) 859-4000
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 9.2. Assignment; Binding Effect; Benefit. Neither this
-----------------------------------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
Section 9.3. Amendment. This Agreement may be amended by the parties
---------
hereto at any time prior to the Effective Time provided that no amendment shall
be made which by law requires the further approval of stockholders of the
Company without
8
<PAGE>
obtaining such further approval. This Agreement may not be amended or modified
except by an instrument in writing signed by or on behalf of each of the parties
hereto.
Section 9.4. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws.
Section 9.5. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies of this Agreement, each of which may be signed by less than all
of the parties hereto, but together all such copies are signed by all of the
parties hereto.
Section 9.6. Headings. Headings of the Articles and Sections of this
--------
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 9.7. Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 9.8. Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or otherwise affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 9.9. Enforcement of Agreement. The parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware court, this
being in addition to any other remedy to which they may be entitled at law or in
equity.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same
to be duly delivered on their behalf as of the day and year first written above.
DAL-TILE INTERNATIONAL INC.
By: /s/ Christine J. Smith
----------------------------------
Name: Christine J. Smith
Title: Vice President
DTI INVESTORS LLC
By: AEA Investors Inc., its manager
By: /s/ Christine J. Smith
----------------------------------
Name: Christine J. Smith
Title: Vice President
DTI MERGER COMPANY
By: /s/ Christine J. Smith
----------------------------------
Name: Christine J. Smith
Title: Vice President
10
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DAL-TILE INTERNATIONAL INC.
(Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware)
The undersigned Secretary of DAL-TILE INTERNATIONAL INC., a corporation
organized and existing under the laws of the State of Delaware, hereby
certifies as follows:
1. The Corporation's present name is Dal-Tile International Inc. It
was originally incorporated under the name of Gamma Four Holdings Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State was January 30, 1987.
2. This Second Amended and Restated Certificate of Incorporation
amends and restates the Amended and Restated Certificate of Incorporation of the
Corporation, as now in effect (the "Existing Certificate of Incorporation").
-------------------------------------
This Second Amended and Restated Certificate of Incorporation was proposed by
the Board of Directors of the Corporation and adopted by the stockholders of the
Corporation in the manner and by the vote prescribed by Sections 242 and 245 of
the General Corporation Law of the State of Delaware (the "DGCL"), the written
----
consent of the stockholders having been given in accordance with Section 228 of
the DGCL. The Existing Certificate of Incorporation hereby is amended and
restated in its entirety to read as follows:
FIRST: The name of the Corporation is Dal-Tile International
Inc.
<PAGE>
SECOND: The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street,
in the City of Wilmington, County of New Castle. The name of its
registered agent as such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 211,100,000
shares, divided into two classes, of which (a) 200,000,000 shares of
par value $.01 per share shall be designated as Common Stock, and (b)
11,100,000 shares of par value $.01 per share shall be designated as
Preferred Stock.
A statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of
each class of stock is as follows:
A. Preferred Stock.
---------------
Shares of the Preferred Stock of the Corporation may be
issued from time to time in one or more series, each of which series
shall have such distinctive designation or title as shall be fixed by
the Board of Directors prior to the issuance of any shares thereof.
Each such series of Preferred Stock shall have such voting powers,
full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be
stated in such resolution or resolutions providing for the issue of
such series of Preferred Stock as may be adopted from time to time by
the Board of Directors prior to the issuance of any shares thereof
pursuant to the authority hereby vested in it, all in accordance with
the laws of the State of Delaware.
B. Common Stock.
------------
1. Dividends. Subject to the preferential rights, if any,
---------
of the holders of Preferred Stock, the holders of shares of Common
Stock shall be entitled to receive, when and if declared by the Board
of Directors, out of the assets of the Corporation which are by law
-2-
<PAGE>
available therefor, dividends payable either in cash, in property or
in shares of Common Stock.
2. Voting Rights. Except as otherwise required by law, at
-------------
every annual or special meeting of stockholders of the Corporation,
every holder of Common Stock shall be entitled to one vote, in person
or by proxy, for each share of Common Stock standing in his, her or
its name on the books of the Corporation.
3. Liquidation, Dissolution or Winding Up. In the event of
--------------------------------------
any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation, after payment or provision for the
payment of the debts and other liabilities of the Corporation and of
the preferential amounts, if any, to which the holders of Preferred
Stock shall be entitled, the holders of all outstanding shares of
Common Stock shall be entitled to share ratably in the remaining net
assets of the Corporation.
C. Reclassification.
----------------
On the date this Second Amended and Restated Certificate of
Incorporation becomes effective, without the further action of the
Corporation or the stockholders of the Corporation: (1) the 1,595,238
then outstanding shares of Class A Common Stock of the Corporation
shall automatically be converted into 17,707,141.8 fully paid and
nonassessable shares of Common Stock; (2) the 15,873 then outstanding
shares of Class B Common Stock of the Corporation shall automatically
be converted into 176,190.3 fully paid and nonassessable shares of
Common Stock; (3) the 495,254 then outstanding shares of Class C
Common Stock of the Corporation shall automatically be converted into
5,497,319.4 fully paid and nonassessable shares of Common Stock; (4)
the 198,413 then outstanding shares of Class E Common Stock of the
Corporation shall automatically be converted into 2,202,384.3 fully
paid and nonassessable shares of Common Stock; and (5) the 1,785,715
aggregate then outstanding shares of Class D Common Stock and Class F
Common Stock of the Corporation shall automatically be converted into
19,821,436.5 fully paid and nonassessable shares of Common Stock.
Each stockholder shall deliver to the Corporation his, her or
its stock certificates representing shares of Class A Common
-3-
<PAGE>
Stock, Class B Common Stock, Class C Common Stock, Class D Common
Stock, Class E Common Stock or Class F Common Stock of the
Corporation, and the proper officers of the Corporation shall execute,
issue and deliver to each such stockholder certificates representing
shares of Common Stock.
FIFTH: Elections of directors need not be by ballot unless
the By-Laws of the Corporation so provided.
SIXTH: The Board of Directors of the Corporation may make
By-Laws and, from time to time, may alter, amend or repeal By-Laws.
SEVENTH: To the fullest extent permitted by the Delaware
General Corporation Law as the same exists or may hereafter be
amended, a Director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director.
IN WITNESS WHEREOF, the undersigned has signed this instrument
the 14th day of August, 1996.
------- ------
/s/ Christine J. Smith
---------------------------------
Christine J. Smith
Secretary
-4-
<PAGE>
EXHIBIT 10.1
CONFORMED COPY
================================================================================
DAL-TILE INTERNATIONAL INC.
DAL-TILE GROUP INC.
---------------------------------------
$525,000,000
CREDIT AND GUARANTEE
AGREEMENT
August 14, 1996
---------------------------------------
CREDIT SUISSE
as Documentation Agent
GOLDMAN SACHS CREDIT PARTNERS L.P.
as Syndication Agent
THE CHASE MANHATTAN BANK
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. DEFINITIONS........................................................ 1
1.1 Defined Terms........................................................ 1
1.2 Other Definitional Provisions; Financial Calculations................ 21
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS.......................... 22
2.1 Term Loans 22
2.2 Procedure for Term Loan Borrowing.................................... 22
2.3 Repayment of Term Loans.............................................. 22
2.4 Evidence of Term Loan Debt........................................... 23
2.5 Term Loan Commitment Fee............................................. 23
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS................... 24
3.1 Revolving Credit Commitments......................................... 24
3.2 Procedure for Revolving Credit Borrowing............................. 24
3.3 Commitment Fee....................................................... 24
3.4 Termination or Reduction of Commitments.............................. 25
3.5 Repayment of Revolving Credit Loans; Evidence of Debt................ 25
3.6 Swing Line Commitment................................................ 26
3.7 Repayment of Swing Line Loans; Evidence of Debt...................... 26
3.8 Procedure for Borrowing Swing Line Loans............................. 27
3.9 Swing Line Loan Participations....................................... 27
3.10 L/C Commitment...................................................... 28
3.11 Procedure for Issuance of Letters of Credit......................... 29
3.12 Fees, Commissions and Other Charges................................. 29
3.13 L/C Participations.................................................. 30
3.14 Reimbursement Obligation of the Borrower............................ 31
3.15 Obligations Absolute................................................ 31
3.16 Letter of Credit Payments........................................... 32
3.17 Application. 32
3.18 Reservation of Commitments.......................................... 32
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS
AND LETTERS OF CREDIT 32
4.1 Optional and Mandatory Prepayments................................... 32
4.2 Conversion and Continuation Options.................................. 34
4.3 Minimum Amounts and Maximum Number of Tranches....................... 35
4.4 Interest Rates and Payment Dates..................................... 35
4.5 Computation of Interest and Fees..................................... 35
4.6 Inability to Determine Interest Rate................................. 36
4.7 Pro Rata Treatment and Payments...................................... 36
4.8 Illegality 37
4.9 Requirements of Law.................................................. 37
4.10 Taxes 38
4.11 Indemnity 41
4.12 Change of Lending Office; Filing of Certificates or Documents....... 41
4.13 Replacement Lenders................................................. 41
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 5. REPRESENTATIONS AND WARRANTIES 41
5.1 Financial Condition.................................................. 42
5.2 No Change 42
5.3 Corporate Existence; Compliance with Law............................. 43
5.4 Corporate Power; Authorization; Enforceable Obligations.............. 43
5.5 No Legal Bar......................................................... 43
5.6 No Material Litigation............................................... 43
5.7 No Default 43
5.8 Ownership of Property; Liens......................................... 44
5.9 Intellectual Property................................................ 44
5.10 No Burdensome Restrictions.......................................... 44
5.11 Taxes 44
5.12 Federal Regulations................................................. 44
5.13 ERISA 44
5.14 Investment Company Act; Other Regulations........................... 45
5.15 Subsidiaries 45
5.16 Purpose of Loans.................................................... 45
5.17 Environmental Matters............................................... 45
5.18 Accuracy of Information............................................. 46
5.19 Solvency 46
5.20 Labor Matters....................................................... 46
SECTION 6. CONDITIONS PRECEDENT............................................... 47
6.1 Conditions to Term Loans............................................. 47
6.2 Conditions to Each Extension of Credit............................... 49
SECTION 7. AFFIRMATIVE COVENANTS.............................................. 50
7.1 Financial Statements................................................. 50
7.2 Certificates; Other Information...................................... 51
7.3 Payment of Obligations............................................... 52
7.4 Conduct of Business and Maintenance of Existence..................... 52
7.5 Maintenance of Property; Insurance................................... 52
7.6 Inspection of Property; Books and Records; Discussions............... 52
7.7 Notices 52
7.8 Environmental Laws................................................... 53
7.9 Additional Guarantors................................................ 53
7.10 Pledge of Stock..................................................... 53
SECTION 8. NEGATIVE COVENANTS................................................. 54
8.1 Financial Condition Covenants........................................ 54
8.2 Limitation on Indebtedness........................................... 54
8.3 Limitation on Liens.................................................. 55
8.4 Limitation on Guarantee Obligations.................................. 57
8.5 Limitation on Fundamental Changes.................................... 57
8.6 Limitation on Sale of Assets......................................... 58
8.7 Limitation on Leases................................................. 58
8.8 Limitation on Restricted Payments.................................... 58
8.9 Limitation on Capital Expenditures................................... 59
8.10 Limitation on Investments, Loans and Advances....................... 60
8.11 Limitation on Transactions with Affiliates.......................... 61
8.12 Limitation on Sales and Leasebacks.................................. 61
8.13 Limitation on Changes in Fiscal Year................................ 61
8.14 Limitation on Certain Clauses....................................... 61
8.15 Limitation on Lines of Business..................................... 61
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 9. NEGATIVE COVENANTS OF HOLDINGS 61
9.1 Limitation on Holdings' Activities................................... 62
9.2 Restricted Payments.................................................. 62
9.3 Equity Net Proceeds.................................................. 62
9.4 Dividends. 62
SECTION 10. GUARANTEE......................................................... 63
10.1 Guarantee 63
10.2 No Subrogation, Contribution, Reimbursement or Indemnity............ 63
10.3 Amendments, etc. with respect to the Obligations; Waiver of Rights.. 63
10.4 Guarantee Absolute and Unconditional................................ 64
10.5 Reinstatement....................................................... 65
10.6 Payments 65
SECTION 11. EVENTS OF DEFAULT................................................. 65
SECTION 12. THE ADMINISTRATIVE AGENT.......................................... 68
12.1 Appointment......................................................... 68
12.2 Delegation of Duties................................................ 68
12.3 Exculpatory Provisions.............................................. 68
12.4 Reliance by Administrative Agent.................................... 69
12.5 Notice of Default................................................... 69
12.6 Non-Reliance on Administrative Agent and Other Lenders.............. 69
12.7 Indemnification..................................................... 70
12.8 Administrative Agent in Its Individual Capacity..................... 70
12.9 Successor Administrative Agent...................................... 70
12.10 Issuing Bank; Swing Line Lender.................................... 71
12.11 Annual Administration Fee.......................................... 71
SECTION 13. MISCELLANEOUS..................................................... 71
13.1 Amendments and Waivers.............................................. 71
13.2 Notices 72
13.3 No Waiver; Cumulative Remedies...................................... 72
13.4 Survival of Representations and Warranties.......................... 73
13.5 Payment of Expenses and Taxes....................................... 73
13.6 Successors and Assigns; Participations and Assignments.............. 73
13.7 Adjustments; Set-off................................................ 75
13.8 Counterparts........................................................ 76
13.9 Severability 76
13.10 Integration 76
13.11 GOVERNING LAW...................................................... 76
13.12 Submission To Jurisdiction; Waivers................................ 76
13.13 Acknowledgements................................................... 77
13.14 WAIVERS OF JURY TRIAL.............................................. 77
13.15 Confidentiality.................................................... 77
13.16 Usury Savings Clause............................................... 78
</TABLE>
<PAGE>
ANNEXES:
Annex A Pricing Grid
SCHEDULES:
Schedule 1.1(a) Commitments, Addresses and Lending Offices
Schedule 5.15 Subsidiaries of Holdings and the Borrower
Schedule 6.1(c) Refinanced Indebtedness
Schedule 8.2(e) Existing Indebtedness
Schedule 8.3(g) Existing Liens
Schedule 8.4(a) Existing Guarantee Obligations
EXHIBITS:
Exhibit A Form of Subsidiaries Guarantee
Exhibit B Form of Swing Line Loan Participation Certificate
Exhibit C Form of Term Note
Exhibit D Form of Revolving Credit Note
Exhibit E Form of Swing Line Note
Exhibit F Form of Closing Certificate
Exhibit G Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson
Exhibit H Form of Assignment and Acceptance
Exhibit I Form of Exemption Certificate
<PAGE>
CREDIT AND GUARANTEE AGREEMENT, dated as of August 14, 1996,
among:
(1) DAL-TILE INTERNATIONAL INC, a Delaware corporation ("Holdings");
(2) DAL-TILE GROUP INC., a Delaware corporation (the "Borrower");
(3) THE SEVERAL BANKS, FINANCIAL INSTITUTIONS AND OTHER ENTITIES from time
to time parties to this Agreement (collectively, the "Lenders";
individually, a "Lender");
(4) CREDIT SUISSE, as Documentation Agent (in such capacity, the
"Documentation Agent");
(5) GOLDMAN SACHS CREDIT PARTNERS L.P., as Syndication Agent (in such
capacity, the "Syndication Agent"); and
(6) THE CHASE MANHATTAN BANK, a New York banking corporation, as
Administrative Agent (as hereinafter defined) for the Lenders
hereunder (together with the Syndication Agent and the Documentation
Agent, the "Managing Agents").
W I T N E S S E T H :
--------------------
WHEREAS, Holdings and the Borrower have informed the Administrative Agent
and the Lenders that Holdings intends to issue and sell shares of its common
stock in an initial public offering registered under the Securities Act of 1933,
as amended (the "IPO"); and
WHEREAS, in connection with the IPO, Holdings and the Borrower have
requested the Lenders to enter into this Agreement to make loans and other
extensions of credit to be used, together with the proceeds of the IPO, to
refinance or repurchase certain of the outstanding indebtedness of Holdings and
the Borrower and to provide financing for the working capital needs and general
corporate purposes of the Borrower and its Subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
effect on such day, (b) the Base CD Rate in effect on such day plus 1%
and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office
in New York City (the Prime Rate not being intended to be the lowest rate
of interest charged by the Administrative Agent in connection with
extensions of credit to debtors); "Base CD Rate" shall mean the sum of
(a) the product of (i) the Three-Month
<PAGE>
2
Secondary CD Rate and (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the CD Reserve Percentage and (b)
the CD Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for
any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board of
Governors through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of
the Board of Governors, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate
shall not be so reported on such day or such next preceding Business Day,
the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day
(or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected
by it; "CD Assessment Rate" shall mean, for any day, the annual
assessment rate in effect on such day which is payable by a member of the
Bank Insurance Fund maintained by the FDIC classified as well-capitalized
and within supervisory subgroup "B" (or a comparable successor assessment
risk classification) within the meaning of 12 C.F.R. (S) 327.4 (or any
successor provision) to the FDIC for the FDIC's insuring time deposits at
offices of such institution in the United States; "CD Reserve Percentage"
shall mean, for any day, that percentage (expressed as a decimal) which
is in effect on such day, as prescribed by the Board of Governors, for
determining the maximum reserve requirement for a Depositary Institution
(as defined in Regulation D of the Board of Governors) in respect of new
non-personal time deposits in Dollars having a maturity of 30 days or
more; and "Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for the day of
such transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. Any change in the
ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate,
the CD Assessment Rate, the CD Reserve Percentage or the Federal Funds
Effective Rate shall be effective as of the opening of business on the
effective day of such change in the Prime Rate, the Three-Month Secondary
CD Rate, the CD Assessment Rate, the CD Reserve Percentage or the Federal
Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Accreted Value": with respect to any Zero Coupon Note, the adjusted
issue price, as determined under Treasury Regulation Section 1.1275-1(b),
of such Zero Coupon Note as at the first day of the accrual period in
which the date as of which the Accreted Value is to be determined occurs,
increased by the daily portion of the original issue discount for each
day in such accrual period ending prior to such date of determination, as
determined under Treasury Regulation Section 1.1272-1(b).
"Adjustment Date": the first Business Day following receipt by the
Administrative Agent of both (i) the financial statements required to be
delivered pursuant to subsection 7.1(a) or 7.1(b), as the case may be,
for the most recently completed fiscal period and (ii) the certificate
required to be delivered pursuant to subsection 7.2(b) with respect to
such fiscal period.
<PAGE>
3
"Administrative Agent": Chase, together with its affiliates, as the
administrative agent for the Lenders under this Agreement and the other
Loan Documents, and any successor thereto pursuant to subsection 12.9.
"AEA Group": collectively, (a) AEA Investors and its Affiliates and
(b) (i) the current or future holders of the Capital Stock of AEA
Investors and their respective Affiliates, (ii) the current or future
employees, directors and officers of AEA Investors and their respective
Affiliates, (iii) trusts for the benefit of the Persons referred to in
clauses (i) and (ii) above or the spouses, issue, parents or other
relatives of such Persons, (iv) entities controlling or controlled by
such Persons and (v) in the event of the death of any such individual
Person, heirs or testamentary legatees of such Person.
"AEA Investors": AEA Investors Inc., a privately held investment firm
located in New York, New York.
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors of such Person
or (b) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Aggregate Revolving Credit Outstandings": as to any Revolving Credit
Lender at any time, an amount equal to the sum of (a) the aggregate
principal amount of all Revolving Credit Loans made by such Revolving
Credit Lender then outstanding plus (b) such Revolving Credit Lender's
Revolving Credit Commitment Percentage of the L/C Obligations then
outstanding plus (c) such Revolving Credit Lender's Revolving Credit
Commitment Percentage of all Swing Line Loans then outstanding.
"Agreement": this Credit and Guarantee Agreement, as amended,
supplemented or otherwise modified from time to time.
"Annual Administration Fee": as defined in subsection 12.11.
"Applicable Margin": (a) with respect to ABR Loans, 0%, and (b) with
respect to Eurodollar Loans, 1.00%, subject to adjustment as follows:
(i) if the Applicable Margin for all Loans set forth on Annex A
-------
hereto opposite the Leverage Ratio Level of the Borrower determined as
of the Adjustment Date relating to September 30, 1996 (which shall be
computed based on Consolidated EBITDA for the period of four
consecutive fiscal quarters ending September 30, 1996 on a pro forma
basis after giving effect to the IPO, the Private Placement and the
Refinancing) shall be higher than 0%, with respect to ABR Loans, and
1.00%, with respect to Eurodollar Loans, (A) the Company shall
promptly pay (with interest accruing on such amount from the
Adjustment Date relating to September 30, 1996 until the date of
payment at the rate of interest applicable to ABR Loans at such time
(whether or not any such ABR Loans are then outstanding)) to the
Administrative Agent, for the benefit of the Lenders, the difference
between the interest which would have been payable were such higher
Applicable Margin(s) in effect during the period ending on the
Adjustment Date relating
<PAGE>
4
to September 30, 1996 and the interest which is payable during such
period based on Applicable Margins of 0%, with respect to ABR Loans,
and 1.00%, with respect to Eurodollar Loans, and (B) such higher
Applicable Margins shall be in effect until the first Adjustment Date
which occurs on or after December 31, 1996;
(ii) on the Adjustment Date which occurs on or after December 31,
1996 and prior to March 31, 1997, the Applicable Margin for all Loans
will be adjusted (but not lower than 0%, with respect to ABR Loans and
1.00%, with respect to Eurodollar Loans), if required, on such
Adjustment Date, to the Applicable Margin set forth on Annex A hereto
-------
opposite the Leverage Ratio Level of the Borrower in effect on such
Adjustment Date; and
(iii) from and after March 31, 1997, the Applicable Margin for all
Loans will be adjusted, if required, on each Adjustment Date, to the
Applicable Margin set forth on Annex A hereto opposite the Leverage
-------
Ratio Level of the Borrower in effect on such Adjustment Date;
provided, that, in the event that the financial statements required to be
delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable, and the
related certificate required pursuant to subsection 7.2(b), are not
delivered when due, then, during the period from the date upon which such
financial statements were required to be delivered until one Business Day
following the date upon which they actually are delivered, the Applicable
Margin for ABR Loans shall be 0.25% and the Applicable Margin for
Eurodollar Loans shall be 1.25%.
"Application": an application, in such form as the Issuing Bank may
specify from time to time, requesting the Issuing Bank to open a Letter
of Credit.
"Armstrong": Armstrong World Industries, Inc., a Pennsylvania
corporation.
"Asset Sale": as to any Person, any sale or other disposition
(including any sale or other disposition in connection with a
Sale/Leaseback Transaction and any mortgage or lease of real property)
subsequent to the Closing Date of any property of such Person (except
sales or other dispositions permitted under subsection 8.6(a) through
8.6(f)).
"Available Revolving Credit Commitment": as to any Revolving Credit
Lender at any time, an amount equal to the excess, if any, of (a) the
amount of such Revolving Credit Lender's Revolving Credit Commitment at
such time over (b) such Revolving Credit Lender's Aggregate Revolving
Credit Outstandings at such time; collectively, as to all the Revolving
Credit Lenders, the "Available Revolving Credit Commitments".
"Board of Governors": the Board of Governors of the Federal Reserve
System and any Governmental Authority which succeeds to the powers and
functions thereof.
"Borrower": as defined in the Preamble to this Agreement.
"Borrowing Date": any Business Day specified in a notice pursuant to
subsection 2.2, 3.2 or 3.8 as a date on which the Borrower requests the
Lenders to make Loans or the Swing Line Lender to make Swing Line Loans
hereunder.
<PAGE>
5
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"Capital Expenditures": as to any Person for any period, the
aggregate amount of all expenditures by such Person and its Subsidiaries
(other than any such expenditures in respect of the purchase price of
Investments permitted under subsection 8.10(f)) for the rental, lease,
purchase (including by way of the acquisition of securities of a Person),
construction or use of any property during such period, which, in
accordance with GAAP, are or should be included in "capital expenditures"
or similar items in such Person's consolidated statement of cash flows
for such period, excluding (a) any such expenditure in respect of any
Replacement Asset (other than capital expenditures for ordinary
maintenance purposes) and (b) any such expenditure made to restore,
replace or rebuild property to the condition of such property immediately
prior to a Casualty Event with respect to such property, to the extent
such expenditure is made with the Net Proceeds from such Casualty Event.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents": (a) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from
the date of acquisition, (b) marketable general obligations issued by any
state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and, at the time of acquisition
thereof, having a credit rating of "A" or better from either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc.; (c) certificates
of deposit, time deposits, eurodollar time deposits, overnight bank
deposits or bankers' acceptances having maturities of not more than one
year from the date of acquisition thereof of any Lender, or of any
domestic commercial bank the long-term debt of which is rated at the time
of acquisition thereof at least A or the equivalent thereof by Standard &
Poor's Ratings Group, or A or the equivalent thereof by Moody's Investors
Service, Inc., and having capital and surplus in excess of $300,000,000,
(d) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a), (b) and (c)
entered into with any bank meeting the qualifications specified in clause
(c) above, (e) commercial paper rated at the time of acquisition thereof
at least A-2 or the equivalent thereof by Standard & Poor's Ratings Group
or P-2 or the equivalent thereof by Moody's Investors Service, Inc., or
carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date
of acquisition thereof and (f) other investment instruments approved in
writing by the Required Lenders and offered by any Lender or by any
financial institution which has a combined capital and surplus of not
less than $100,000,000.
"Casualty Event": with respect to any property of any Person, the
receipt by such Person of insurance proceeds, or proceeds of a
condemnation award or other compensation in connection with any loss of
or damage to, or any condemnation or other taking of, such property.
<PAGE>
6
"Chase": The Chase Manhattan Bank, a New York banking corporation.
"Closing Date": the date on which the conditions precedent set
forth in subsection 6.1 shall be satisfied or waived (but in no event
later than December 31, 1996).
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial Letter of Credit": as defined in subsection
3.10(b)(i)(2).
"Commitment": with respect to any Lender, the collective reference to
such Lender's Term Loan Commitment and Revolving Credit Commitment;
collectively, as to all the Lenders, the "Commitments".
"Commitment Fee Rate": as defined in subsection 3.3.
"Commitment Percentage": as to any Lender (a) at any time prior to
the termination of the Revolving Credit Commitments, the percentage which
(i) the sum of (x) such Lender's Revolving Credit Commitment plus (y)
such Lender's Term Loan Commitment (or, after the Term Loans are made,
the outstanding principal amount of such Lender's Term Loan) then
constitutes of (ii) the sum of (x) the Revolving Credit Commitments of
all the Lenders plus (y) the Term Loan Commitments of all the Lenders
(or, after the Term Loans are made, the aggregate principal amount of
Term Loans of all the Lenders then outstanding), and (b) at any time
after the termination of the Revolving Credit Commitments, the percentage
which (i) the sum of (x) the principal amount of such Lender's Loans
(other than Swing Line Loans) then outstanding plus (y) the product of
such Lender's Revolving Credit Commitment Percentage times the sum of (I)
the L/C Obligations then outstanding and (II) the Swing Line Loans then
outstanding then constitutes of (ii) the sum of (x) the aggregate
principal amount of Loans of all the Lenders then outstanding plus (y)
the aggregate L/C Obligations of all the Lenders then outstanding.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower
and which is treated as a single employer under Section 414(b) or (c) of
the Code or, solely for purposes of determining liability under Section
412 of the Code, which is treated as a single employer under Section 414
(b), (c), (m) or (o) of the Code.
"Common Stock": the Common Stock of Holdings, par value $.01 per
share.
"Consolidated Adjusted EBITDA": for any period, Consolidated EBITDA
for such period minus Capital Expenditures of Holdings (or, if the Merger
is consummated, the Borrower) during such period.
"Consolidated Adjusted Interest Coverage Ratio": for any period, the
ratio of (a) Consolidated Adjusted EBITDA for such period to (b)
Consolidated Interest Expense for such period.
<PAGE>
7
"Consolidated Capitalization": at any date of determination, the sum
of (a) Consolidated Total Debt at such date of determination plus (b)
Consolidated Net Worth at such date of determination, all as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Current Assets": at any date of determination, all
assets (other than cash and Cash Equivalents) which would, in accordance
with GAAP, be classified on a consolidated balance sheet of Holdings (or,
if the Merger is consummated, the Borrower) and its Subsidiaries as
current assets at such date of determination.
"Consolidated Current Liabilities": at any date of determination, all
liabilities (other than short term debt and current maturities of long
term debt) which would, in accordance with GAAP, be classified on a
consolidated balance sheet of Holdings (or, if the Merger is consummated,
the Borrower) and its Subsidiaries as current liabilities at such date of
determination.
"Consolidated EBITDA": for any period, the Consolidated Net Income
for such period, plus, to the extent deducted in determining such
Consolidated Net Income, (a) Consolidated Interest Expense, (b)
depreciation, (c) amortization and (d) all Federal, state, local and
foreign income taxes, all as determined on a consolidated basis in
accordance with GAAP, provided that (i) Consolidated EBITDA for the
period of four consecutive fiscal quarters ending December 31, 1996,
shall be equal to the product of (A) Consolidated EBITDA for the fiscal
quarter ending December 31, 1996 times (B) 4, (ii) Consolidated EBITDA
for the period of four consecutive fiscal quarters ending March 31, 1997,
shall be equal to the product of (A) Consolidated EBITDA for the two
consecutive fiscal quarters ending March 31, 1997 times (B) 2, and (iii)
Consolidated EBITDA for the period of four consecutive fiscal quarters
ending June 30, 1997, shall be equal to the product of (A) Consolidated
EBITDA for the three consecutive fiscal quarters ending June 30, 1997
times (B) a fraction, the numerator of which is 4 and the denominator of
which is 3.
"Consolidated Interest Expense": for any period, the amount of
interest expense, both expensed and capitalized, of Holdings (or, if the
Merger is consummated, the Borrower) and its Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP, provided
that (i) Consolidated Interest Expense for the period of four consecutive
fiscal quarters ending December 31, 1996, shall be equal to the product
of (A) Consolidated Interest Expense for the fiscal quarter ending
December 31, 1996 times (B) 4, (ii) Consolidated Interest Expense for the
period of four consecutive fiscal quarters ending March 31, 1997, shall
be equal to the product of (A) Consolidated Interest Expense for the two
consecutive fiscal quarters ending March 31, 1997 times (B) 2, and (iii)
Consolidated Interest Expense for the period of four consecutive fiscal
quarters ending June 30, 1997, shall be equal to the product of (A)
Consolidated Interest Expense for the three consecutive fiscal quarters
ending June 30, 1997 times (B) a fraction, the numerator of which is 4
and the denominator of which is 3.
"Consolidated Lease Expense": for any period, the aggregate amount of
fixed and contingent rentals payable by Holdings (or, if the Merger is
consummated, the Borrower) and its Subsidiaries for such period with
respect to leases of real and personal property, determined on a
consolidated basis in accordance with GAAP.
<PAGE>
8
"Consolidated Leverage Ratio": for any period, the ratio of (a)
Consolidated Total Debt at the last day of such period to (b)
Consolidated EBITDA for such period.
"Consolidated Net Income": for any period, the net income of Holdings
(or, if the Merger is consummated, the Borrower) and its Subsidiaries for
such period as determined on a
consolidated basis in accordance with GAAP, but excluding from the
determination thereof (without duplication) (a) any extraordinary or non-
recurring gains or losses, (b) gains or losses from the proposed or
actual disposition of material assets and (c) goodwill write-downs and
restructuring charges (but deducting from the determination of
Consolidated Net Income for any period, cash payments made during such
period in respect of any goodwill write-downs or restructuring charges
recorded after the Closing Date).
"Consolidated Net Revenue": of any Person for any period, the net
revenue of such Person and its consolidated Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth": at any date of determination, all items
which would, in accordance with GAAP, be included under shareholders'
equity on a consolidated balance sheet of Holdings (or, if the Merger is
consummated, the Borrower) and its Subsidiaries at such date of
determination, but excluding from the determination thereof the effect to
any foreign currency translation adjustments.
"Consolidated Total Assets": of any Person at any date of
determination, the total assets of such Person and its consolidated
Subsidiaries at such date of determination, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Debt": at any date of determination, all
Indebtedness of Holdings (or, if the Merger is consummated, the Borrower)
and its consolidated Subsidiaries at such date of determination as
determined on a consolidated basis in accordance with GAAP.
"Continuing Letter of Credit": any Existing Letter of Credit issued
by a Lender.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Currency Rate Protection Agreements": as to any Person, all foreign
exchange contracts, currency swap agreements or other similar agreements
or arrangements entered into in the ordinary course of business by such
Person designed to protect such Person against fluctuations in currency
values.
"Default": any of the events specified in Section 11, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Deferred Funding Date": as defined in subsection 2.2.
"Documentation Agent": as defined in the Preamble to this Agreement.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
<PAGE>
9
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health or the environment, as now or may at any time hereafter be in
effect.
"Environmental Permits": all permits, licenses, registrations,
notifications, exemptions, and other authorizations required under
Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors or
other Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board of Governors) maintained by a member bank of the Federal
Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the
rate at which Chase is offered Dollar deposits at or about 10:00 A.M.,
New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations in respect of its Eurodollar
Loans are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/1,000th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 11,
provided that all requirements for the giving of notice, the lapse of
time, or both, have been satisfied.
"Exchange Act": as defined in Section 10(j).
"Existing Letter of Credit": at any date, any letter of credit issued
and outstanding under the Existing Loan Agreement.
<PAGE>
10
"Existing Loan Agreement": the Loan Agreement, dated as of January 9,
1990, by and among the Borrower, the financial institutions parties
thereto, National Westminster Bank USA, as agent and Credit Suisse, as
co-manager, as amended.
"Extension of Credit": with respect to any Lender, the making of a
Loan by such Lender, and, if such Lender is a Revolving Credit Lender,
the issuance of a Letter of Credit; with respect to all the Lenders, the
"Extensions of Credit".
"FDIC": the Federal Deposit Insurance Corporation and any
Governmental Authority which succeeds to the powers and functions
thereof.
"Federal Funds Effective Rate": as defined in the definition of ABR
contained in this subsection 1.1.
"Final Prospectus": the Prospectus relating to the IPO, as filed with
and declared effective by the SEC.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Financing Lease Obligations": as to any Person, the obligations of
such Person to pay rent or other amounts under any Financing Lease; the
amount of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.
"Foreign Holding Company": any Subsidiary organized under the laws of
the United States of America or any State thereof the principal assets of
which consist of the Capital Stock of one or more Foreign Subsidiaries or
other Foreign Holding Companies.
"Foreign Subsidiary": (a) any Subsidiary of the Borrower organized
under the laws of any jurisdiction outside the United States of America
and (b) any Foreign Holding Company.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee": the guarantee contained in Section 10 or in the
Subsidiaries Guarantee.
"Guarantee Obligation": as to any Person (the "Guaranteeing Person"),
any obligation of (a) the Guaranteeing Person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the Guaranteeing Person has issued a
reimbursement, counter indemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend
or other obligation (the "Primary Obligations") of any other third Person
(the "Primary Obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the Guaranteeing Person,
whether or not contingent, (i) to purchase any such Primary Obligation or
any property
<PAGE>
11
constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such Primary
Obligation or (2) to maintain working capital or equity capital of the
Primary Obligor or otherwise to maintain the net worth or solvency of the
Primary Obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such Primary
Obligation of the ability of the Primary Obligor to make payment of such
Primary Obligation or (iv) otherwise to assure or hold harmless the owner
of any such Primary Obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
Guaranteeing Person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the Primary Obligation in
respect of which such Guarantee Obligation is made and (b) the maximum
amount for which such Guaranteeing Person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless such
Primary Obligation and the maximum amount for which such Guaranteeing
Person may be liable are not stated or determinable, in which case the
amount of such Guarantee Obligation shall be such Guaranteeing Person's
maximum reasonably anticipated liability in respect thereof as determined
by the Borrower in good faith.
"Guarantors": Holdings and each Subsidiary of the Borrower which is a
party to the Subsidiaries Guarantee.
"Hazardous Materials": any petroleum (including crude oil or any
fraction thereof) or petroleum products, polychlorinated biphenyls, urea-
formaldehyde insulation, asbestos and asbestos-containing materials,
pollutants, contaminants, and all other materials and substances
including but not limited to radioactive materials regulated pursuant to
any Environmental Laws or that could result in liability under any
Environmental Law.
"Hedge Agreements": collectively, any Currency Rate Protection
Agreements and Interest Rate Protection Agreements.
"Holdings": as defined in the Preamble to this Agreement.
"Indebtedness": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current trade payables
or liabilities and deferred payment for services to employees and former
employees incurred in the ordinary course of business and payable in
accordance with customary practices and other deferred compensation
practices), (b) any other indebtedness of such Person which is evidenced
by a note, bond, debenture or similar instrument, (c) all obligations of
such Person under Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person,
(e) the face amount of all letters of credit issued for the account of
such Person and, without duplication, all drafts drawn thereunder and (f)
all indebtedness of others of the types described in (a) through (d)
above secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the
payment thereof (the amount of such indebtedness with respect to such
Person being deemed to be the lesser of the value of such property or the
amount of indebtedness of others so secured), but in any event excluding
customer deposits in the ordinary course of business.
<PAGE>
12
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": as defined in subsection 5.9.
"Interest Payment Date": (a) as to ABR Loans, the last day of each
March, June, September and December, (b) as to any Eurodollar Loan having
an Interest Period of three months or less, the last day of such Interest
Period and (c) as to any Eurodollar Loan having an Interest Period longer
than three months, each day which is three months, or a whole multiple
thereof, after the first day of such Interest Period and the last day of
such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) no Interest Period that would otherwise extend beyond the
Revolving Credit Termination Date or beyond the date final payment is
due on the Term Loans shall be selected by the Borrower;
(3) any Interest Period pertaining to a Eurodollar Loan that begins
on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of a
calendar month; and
(4) the Borrower shall select Interest Periods so as not to require
a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Eurodollar Loan.
<PAGE>
13
"Interest Rate Protection Agreements": as to any Person, all interest
rate swaps, caps or collar agreements or similar arrangements entered
into by such Person providing for protection against fluctuations in
interest rates or the exchange of nominal interest obligations, either
generally or under specific contingencies.
"Investment": as defined in subsection 8.10.
"IPO": as defined in the recitals to this Agreement.
"Issuing Bank": (a) with respect to Letters of Credit (other than
Continuing Letters of Credit), Chase or any of its Affiliates, in its
capacity as issuer of any Letter of Credit and (b) with respect to
Continuing Letters of Credit, the Lender which issued such Continuing
Letter of Credit under the Existing Loan Agreement.
"Joint Venture": any joint venture arrangement, including interests
in business units, formed after the Closing Date to engage in a Related
Business in which the Borrower or any of its Subsidiaries owns an equity
interest not in excess of 50% of the equity interest of all joint
venturers thereof, and which is not controlled by or under common control
with the Borrower or such Subsidiary, whether such joint venture is
structured as a corporation, partnership, trust, limited liability
company or any other Person.
.
"L/C Commitment": $35,000,000.
"L/C Fee Payment Date": the last day of each March, June, September
and December.
"L/C Fee Percentage": as defined in subsection 3.12(b).
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of then unpaid
Reimbursement Obligations.
"L/C Participants": collectively, all the Revolving Credit Lenders.
"Lenders": as defined in the Preamble to this Agreement.
"Letters of Credit": collectively, Commercial Letters of Credit and
Standby Letters of Credit.
"Leverage Ratio Level": as to the Borrower, the existence of Leverage
Ratio Level I, Leverage Ratio Level II, Leverage Ratio Level III,
Leverage Ratio Level IV, Leverage Ratio Level V or Leverage Ratio Level
VI, as the case may be.
"Leverage Ratio Level I": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the period covered
by the financial statements relating to such Adjustment Date is greater
than or equal to 3.75 to 1.00.
"Leverage Ratio Level II": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the
<PAGE>
14
last day of the period covered by the financial statements relating to
such Adjustment Date is less than 3.75 to 1.00 but greater than or equal
to 3.25 to 1.00.
"Leverage Ratio Level III": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
3.25 to 1.00 but greater than or equal to 3.00 to 1.00.
"Leverage Ratio Level IV": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
3.00 to 1.00 but greater than or equal to 2.50 to 1.00.
"Leverage Ratio Level V": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
2.50 to 1.00 but greater than or equal to 2.00 to 1.00.
"Leverage Ratio Level VI": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
2.00 to 1.00.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any Financing Lease having substantially the same economic
effect as any of the foregoing), except for the filing of financing
statements in connection with obligations under leases other than
Financing Leases incurred by the Company or its Subsidiaries to the
extent that such financing statements relate to the property subject to
such lease obligations.
"Loan": any Term Loan, Revolving Credit Loan or Swing Line Loan.
"Loan Documents": this Agreement, any Notes, the Guarantees, the
Applications and any stock pledge agreements executed pursuant to
subsection 7.10.
"Loan Participant": as defined in subsection 13.6(b).
"Loan Parties": the Borrower, Holdings and each Subsidiary of the
Borrower which is a party to a Loan Document.
"Managing Agents": as defined in the Preamble to this Agreement.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property or condition (financial or otherwise) of
the Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or
the rights or remedies of the Administrative Agent or the Lenders
hereunder or thereunder.
<PAGE>
15
"Material Subsidiary": any Subsidiary (a) the Consolidated Total
Assets of which exceed 5% of the Consolidated Total Assets of the
Borrower and its consolidated Subsidiaries as of the end of the most
recently completed fiscal year or (b) the Consolidated Net Revenue of
which exceeds 5% of the Consolidated Net Revenue of the Borrower and its
consolidated Subsidiaries as of the end of the most recently completed
fiscal year.
"Merger": the merger of Holdings with and into the Borrower, with the
Borrower as the surviving corporation.
"Mexican Subsidiaries": the collective reference to the following
Subsidiaries of the Borrower: Dal-Tile of Mexico, S.A. de C.V. and
Materiales Ceramicos, S.A. de C.V.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Proceeds": as to any Person, (a) with respect to any Asset Sale
by such Person, the cash proceeds (including any cash payments received
by way of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise, but only
as and when received) of such Asset Sale net of (i) attorneys' fees,
accountants' fees, investment banking fees, survey costs, title insurance
premiums, and related search and recording charges, transfer taxes, deed
or mortgage recording taxes, other customary expenses, amounts required
to be applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject of such
Asset Sale (other than any Lien in favor of the Administrative Agent for
the benefit of the Lenders) or to the satisfaction of other amounts owing
under Contractual Obligations which become payable as a result of such
Asset Sale and were not incurred in contemplation thereof and brokerage,
consultant and other customary fees and expenses actually incurred in
connection therewith, (ii) taxes attributable thereto and, in the case of
any Asset Sale in a foreign jurisdiction, any taxes reasonably
attributable to the repatriation of the proceeds of such Asset Sale
reasonably estimated by such Person to be payable, and (iii) the
aggregate amount of reserves required in the reasonable judgment of such
Person to be maintained on the books of such Person in order to pay
contingent obligations in respect of agreements entered into in
connection with such Asset Sale, provided, that amounts deducted from
aggregate proceeds pursuant to this clause (iii) and not actually paid by
such Person in liquidation of such contingent obligations shall be deemed
to be Net Proceeds at such time as such contingent obligations shall
cease to be obligations of such Person or to the extent such amounts are
no longer required in the reasonable judgment of such Person as a reserve
with respect to such contingent obligations, (b) with respect to the IPO
or the Private Placement, the gross cash proceeds of the IPO or the
Private Placement, respectively, received by such Person, net only of the
underwriting discounts and commissions payable in connection therewith,
and (c) with respect to any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation
received by the Borrower and its Subsidiaries in respect of such Casualty
Event net of (i) reasonable expenses incurred by the Borrower and its
Subsidiaries in connection therewith, (ii) amounts required to be applied
to the repayment of Indebtedness secured by a Lien expressly permitted
hereunder on any property which is the subject of such Casualty Event and
(iii) amounts applied or that such Person intends with reasonable
promptness and diligence to apply to repair or replace the property
subject to the Casualty Event, provided that amounts deducted from
aggregate proceeds pursuant to this
<PAGE>
16
clause (iii) shall be Net Proceeds at such time as such proceeds are, in
such Person's good faith judgment, no longer required for such repair or
replacement.
"New Lending Office": as defined in subsection 4.10(b)(i)(A).
"Non-Excluded Taxes": as defined in subsection 4.10(a).
"Non-Recourse Indebtedness": Indebtedness of the Borrower or any of
its Subsidiaries in respect of which the holders of such Indebtedness
agree in writing that they will look solely to the property securing such
Indebtedness for payment in full of the principal thereof and interest
thereon or are not legally entitled to enforce such Indebtedness against
the Borrower or any of its Subsidiaries.
"Notes": collectively, the Swing Line Note, Revolving Credit Notes
and Term Notes, if any.
"Obligations": the unpaid principal of and interest on the Loans and
the Reimbursement Obligations and all other obligations and liabilities
of the Borrower to the Administrative Agent and the Lenders (including,
without limitation, interest accruing at the then applicable rate
provided in this Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in this Agreement after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, this Agreement, the
other Loan Documents, any Hedge Agreement entered into by the Borrower
with any Lender or any Affiliate of any Lender or any other document
made, delivered or given in connection herewith or therewith, in each
case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to the
Administrative Agent or to the Lenders that are required to be paid by
the Borrower pursuant to the terms of this Agreement, any other Loan
Document or Hedge Agreement entered into by the Borrower with any Lender
or any Affiliate of any Lender).
"Obsolete Property": any property of the Borrower or any of its
Subsidiaries which is obsolete, outdated or worn out or the useful life
of which has ended, in each case in the good faith determination of the
Borrower or any applicable Subsidiary.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA and any Governmental Authority which
succeeds to the powers and functions thereof.
"Person": an individual, partnership, corporation, business trust,
joint stock company, limited liability company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were
<PAGE>
17
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" as defined in Section 3(5) of ERISA.
"Preliminary Prospectus": the Preliminary Prospectus dated July 16,
1996 relating to the IPO.
"Prepayment Account": as defined in subsection 4.1(d).
"Primary Obligation": as defined in the definition of "Guarantee
Obligation" contained in this subsection 1.1.
"Private Placement": the sale by Holdings in a private placement of
shares of its Common Stock to Armstrong for an aggregate purchase price
of $10,000,000 to take place concurrently with the consummation of the
IPO.
"Properties": as defined in subsection 5.17.
"Reclassification": the reclassification (by merger or otherwise) of
shares of Capital Stock outstanding immediately prior to the consummation
of the IPO into the Common Stock.
"Refinancing": as defined in subsection 6.1(c).
"Register": as defined in subsection 13.6(d).
"Regulation G": Regulation G of the Board of Governors as in effect
from time to time.
"Regulation U": Regulation U of the Board of Governors as in effect
from time to time.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Bank pursuant to subsection 3.14(a) for amounts
drawn under Letters of Credit.
"Related Business": any business in which the Borrower or any of its
Subsidiaries is engaged on the date hereof or which is reasonably related
thereto.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Replacement Asset": any property acquired by the Borrower or any of
its Subsidiaries subsequent to the Closing Date which replaces Obsolete
Property of the same type and utility as the property acquired.
"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty day notice period
is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
(S) 2615.
"Required Lenders": at any time, Lenders the Commitment Percentages
of which aggregate more than 50%.
<PAGE>
18
"Required Revolving Credit Lenders": at any time, Revolving Credit
Lenders the Revolving Credit Commitment Percentages of which aggregate
more than 50%.
"Required Term Loan Lenders": at any time, Term Loan Lenders the Term
Loan Commitment Percentages of which aggregate more than 50%.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Reserved Amount": as defined in subsection 3.18.
"Responsible Officer": as to any Person, the chief executive officer
and the president of such Person or, with respect to financial matters,
the chief financial officer of such Person or, in either case, such other
executive officers as may be designated from time to time by such Person
in writing to the Administrative Agent.
"Restricted Payments": as defined in subsection 8.8.
"Revolving Credit Commitment": with respect to any Lender, its
obligation to make Revolving Credit Loans and/or issue or participate in
Letters of Credit issued on behalf of the Borrower and/or make or
participate in Swing Line Loans made to the Borrower in an aggregate
amount not to exceed the amount set forth opposite such Lender's name on
Schedule 1.1(a) under the heading "Revolving Credit Commitment", as such
---------------
amount may be reduced from time to time pursuant to this Agreement or as
such amount may be adjusted from time to time pursuant to subsection
13.6; collectively, as to all such Lenders, the "Revolving Credit
Commitments".
"Revolving Credit Commitment Percentage": as to any Revolving Credit
Lender (a) at any time prior to the termination of the Revolving Credit
Commitments, the percentage of the Revolving Credit Commitments then
constituted by such Revolving Credit Lender's Revolving Credit Commitment
and (b) at any time after the termination of the Revolving Credit
Commitments, the percentage which (i) the sum of (x) such Revolving
Credit Lender's Revolving Credit Loans then outstanding plus (y) the
product of such Revolving Credit Lender's Revolving Credit Commitment
Percentage immediately prior to the termination of the Revolving Credit
Commitments (after giving effect to any permitted assignment pursuant to
subsection 13.6) times the sum of (I) the L/C Obligations then
outstanding and (II) the Swing Line Loans then outstanding then
constitutes of (ii) the sum of (x) the aggregate principal amount of
Revolving Credit Loans of all the Revolving Credit Lenders then
outstanding plus (y) the aggregate L/C Obligations then outstanding plus
(z) the aggregate principal amount of Swing Line Loans then outstanding.
"Revolving Credit Commitment Period": the period from and including
the Closing Date to but not including the Revolving Credit Termination
Date or such earlier date on which the Revolving Credit Commitments shall
terminate as provided herein.
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19
"Revolving Credit Lender": any Lender with an unused Revolving Credit
Commitment hereunder and/or any Revolving Credit Loans outstanding
hereunder; collectively, the "Revolving Credit Lenders".
"Revolving Credit Loans": as defined in subsection 3.1(a).
"Revolving Credit Note": as defined in subsection 3.5(e).
"Revolving Credit Termination Date": December 31, 2002.
"RISA": Recubrimientos Interceramic, S.A. de C.V., a Mexican
corporation.
"Sale/Leaseback Transaction": as defined in subsection 8.12
"SEC": the Securities and Exchange Commission or any Governmental
Authority which succeeds to the powers and functions thereof.
"Series Notes": the 10.625% Series A Senior Notes due January 9, 2000
and the 10.770% Series B Senior Notes due January 9, 2002.
"Significant Subsidiaries": at any date of determination, any
Subsidiary the Consolidated Assets of which exceed $1,000,000 at such
date of determination.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount that will be required to pay all "liabilities of such Person,
contingent or otherwise", as of such date (as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors) as such debts become
absolute and matured, (b) such Person will not have, as of such date, an
unreasonably small amount of capital with which to conduct its business,
and (c) such Person will be able to pay its debts as they mature, taking
into account the timing of and amounts of cash to be received by such
Person and the timing of and amounts of cash to be payable on or in
respect of indebtedness of such Person; in each case after giving effect
to (A) as of the Closing Date the making of the extensions of credit to
be made on the Closing Date and to the application of the proceeds of
such extensions of credit and (B) on any date after the Closing Date, the
making of any extension of credit to be made on such date, and to the
application of the proceeds of such extension of credit. For purposes of
this definition, (i) "debt" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent,
matured or unmatured, disputed, undisputed, secured or unsecured.
"Standby Letter of Credit": as defined in subsection 3.10(b)(i)(1).
<PAGE>
20
"Subsidiaries Guarantee": the Subsidiaries Guarantee to be executed
and delivered by each Subsidiary Guarantor, substantially in the form of
Exhibit A, as the same may be amended, supplemented or otherwise modified
---------
from time to time.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower or Holdings, as the context may require.
"Subsidiary Guarantor": each Subsidiary set forth on Schedule 5.15
-------------
under the heading "Initial Subsidiary Guarantors", together with each
other Subsidiary that becomes a party to the Subsidiaries Guarantee
pursuant to subsection 7.9.
"Swing Line Commitment": $25,000,000.
"Swing Line Lender": as defined in subsection 3.6.
"Swing Line Loan Participation Certificate": a certificate
substantially in the form of Exhibit B.
---------
"Swing Line Loans": as defined in subsection 3.6.
"Swing Line Note": as defined in subsection 3.7(e).
"Swing Line Participation Amount": as defined in subsection 3.9(b).
"Syndication Agent": as defined in the Preamble to this Agreement.
"Term Loan": as defined in subsection 2.1.
"Term Loan Commitment": as to any Lender, its obligation to make a
Term Loan to the Borrower in an amount equal to the amount set forth
opposite such Lender's name in Schedule 1.1(a) under the heading "Term
---------------
Loan Commitment", as such amount may be reduced from time to time
pursuant to this Agreement or as such amount may be adjusted from time to
time pursuant to subsection 13.6; collectively, as to all such Lenders,
the "Term Loan Commitments".
"Term Loan Commitment Percentage": as to any Term Loan Lender at any
time, the percentage of the Term Loan Commitments then constituted by
such Term Loan Lender's Term Loan Commitment (or, after the Term Loans
are made, the percentage of the aggregate Term Loans then constituted by
such Term Loan Lender's Term Loan).
"Term Loan Lender": any Lender with an unused Term Loan Commitment
hereunder and/or any Term Loans outstanding hereunder; collectively, the
"Term Loan Lenders".
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21
"Term Note": as defined in subsection 2.4(d).
"Tranche": collectively, Eurodollar Loans the then current Interest
Periods with respect to all of which begin on the same date and end on
the same later date (whether or not such Loans shall originally have been
made on the same day); Tranches may be identified as "Eurodollar
Tranches".
"Transferee": as defined in subsection 13.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500, as the same may be amended from time to time.
"Voting Stock": Capital Stock, the holders of which are ordinarily,
in the absence of contingencies, entitled to elect a majority of the
corporate directors (in the case of a corporation) or to appoint Persons
performing similar functions (in the case of entities which are not
corporations).
"Zero Coupon Notes": the Senior Secured Zero Coupon Notes of
Holdings, Due July 15, 1998.
"Zero Coupon Note Indenture": the Indenture, dated as of August 11,
1993, between Holdings and Citibank, N.A., as Trustee, as the same may be
amended, supplemented or otherwise modified from time to time in
accordance with subsection 8.11.
"Zero Coupon Tender Offer": the Offer to Purchase and Consent
Solicitation, dated July 17, 1996, made by Holdings in respect of the
outstanding Zero Coupon Notes.
"Zero Coupon Total Consideration": the Total Consideration to be paid
pursuant to the Zero Coupon Tender Offer and as defined in the offering
documents with respect thereto.
1.2 Other Definitional Provisions; Financial Calculations. (a) Unless
otherwise specified therein, all terms defined in this Agreement shall have the
defined meanings when used in the other Loan Documents or any certificate or
other document made or delivered pursuant hereto or thereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
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22
(e) Notwithstanding anything to the contrary herein, for purposes of
making all calculations in connection with the covenants contained in Section 9,
all accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP consistently
applied as in effect on the date of this Agreement. In the event of any
material difference at any time between GAAP in effect on the date of this
Agreement and GAAP from time to time in effect, the certificate of a Responsible
Officer required pursuant to subsection 7.2(b)(ii) shall include a
reconciliation of the calculations required thereby with the financial
statements being delivered with such certificate.
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS
2.1 Term Loans. Subject to the terms and conditions hereof, each Term
Loan Lender severally agrees to make a term loan (a "Term Loan") to the Borrower
on the Closing Date in an amount equal to the Term Loan Commitment of such Term
Loan Lender. The Term Loans may from time to time be (a) Eurodollar Loans, (b)
ABR Loans or (c) a combination thereof, as determined by the Borrower and
notified to the Administrative Agent in accordance with subsections 2.2 and 4.2.
2.2 Procedure for Term Loan Borrowing. The Borrower hereby requests a
Term Loan borrowing on the Closing Date (or, if the Borrower so requests on or
prior to the Closing Date, on the date (the "Deferred Funding Date") on which
the prepayment of the Series Notes is scheduled to occur based on irrevocable
five business days' notice of prepayment given on or prior to the Closing Date)
in an amount equal to the aggregate amount of the Term Loan Commitments of the
Term Loan Lenders. The Borrower shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to 12:00
Noon, New York City time, three Business Days prior to the Closing Date or the
Deferred Funding Date, as the case may be), if all or any part of the Term Loans
are to be initially Eurodollar Loans, specifying (a) the amount of Term Loans
which are initially to be Eurodollar Loans and (b) the respective amounts
thereof and the lengths of the initial Interest Periods therefor. To the extent
that the Borrower does not deliver a notice pursuant to the immediately
preceding sentence, the Term Loans shall initially be ABR Loans. Upon receipt
of any such notice from the Borrower, the Administrative Agent shall promptly
notify each Term Loan Lender thereof. Each Term Loan Lender will make the
amount of its pro rata share of the Term Loans available to the Administrative
Agent for the account of the Borrower at the office of the Administrative Agent
specified in subsection 13.2 prior to 11:00 A.M., New York City time, on the
Closing Date or the Deferred Funding Date, as the case may be, in Dollars and in
funds immediately available to the Administrative Agent. The Administrative
Agent shall credit the account of the Borrower by 12:00 Noon, New York City
time, on the Closing Date or the Deferred Funding Date, as the case may be, on
the books of such office of the Administrative Agent or such other account as
may be specified by the Borrower with the aggregate of the amounts made
available to the Administrative Agent by the Term Loan Lenders and in like funds
as received by the Administrative Agent.
2.3 Repayment of Term Loans. The Borrower hereby unconditionally
promises to pay to the Administrative Agent for the account of the Term Loan
Lenders the principal amount of the Term Loans made by such Term Loan Lenders in
twenty-four consecutive quarterly installments, payable on the last day of each
of March, June, September and December of each year commencing on March 31,
1997, each of which installments on any such date shall be in an amount equal to
25% of the amount set forth below opposite the year in which such date occurs
(or such earlier date on which the Term Loans become due and payable pursuant to
Section 11):
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23
Year Amount
---- ------
1997 $30,000,000
1998 $40,000,000
1999 $40,000,000
2000 $50,000,000
2001 $50,000,000
2002 $65,000,000
The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the Term Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in subsection 4.4.
2.4 Evidence of Term Loan Debt. (a) Each Term Loan Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
indebtedness of the Borrower to such Term Loan Lender from time to time in
respect of the Term Loan of such Term Loan Lender, including the amounts of
principal and interest payable and paid to such Term Loan Lender in respect of
such Term Loan from time to time under this Agreement.
(b) The Administrative Agent shall record in the Register, with separate
subaccounts therein for each Term Loan Lender, (i) the amount of each Term Loan,
the Type thereof and, in the case of Eurodollar Loans, each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Term Loan Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Borrower and each Term Loan Lender's share thereof, if
any.
(c) The entries made in the Register and the accounts of each Term Loan
Lender maintained pursuant to subsections 2.4(a) and 2.4(b) shall, to the extent
permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; provided, however,
that the failure of any Term Loan Lender or the Administrative Agent to maintain
the Register or any such account, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay (with applicable interest) the
Term Loans in accordance with the terms of this Agreement.
(d) The Borrower agrees that, upon the request to the Administrative
Agent by any Term Loan Lender, which request is communicated to the Borrower,
the Borrower will execute and deliver to such Term Loan Lender, a promissory
note of the Borrower dated the Closing Date evidencing the Term Loan of such
Term Loan Lender, substantially in the form of Exhibit C (a "Term Note"),
---------
payable to the order of such Term Loan Lender and in a principal amount equal
to, in the case of Term Notes issued on the Closing Date, the lesser of (A) the
initial Term Loan Commitment of such Term Loan Lender or (B) the unpaid
principal amount of the Term Loan of such Term Loan Lender, and, in the case of
Term Notes issued after the Closing Date, the unpaid principal amount of the
Term Loan of such Term Loan Lender. Each Term Loan Lender is hereby authorized
to record the date, Type and amount of the Term Loan of such Term Loan Lender,
the date and amount of each payment or prepayment of principal thereof, each
continuation of all or a portion thereof as the same Type, each conversion of
all or a portion thereof to another Type and, in the case of Eurodollar Loans,
the length of each Interest Period and Eurodollar Rate with respect thereto, on
the schedule (or any continuation of the schedule) annexed to and constituting a
part of its Term Note and any such recordation shall, to the extent permitted by
applicable law, constitute prima facie evidence of the accuracy of the
information so recorded, provided that the failure to make any
<PAGE>
24
such recordation (or any error therein) shall not affect the obligation of the
Borrower to repay (with applicable interest) the Term Loans in accordance with
the terms of this Agreement.
2.5 Term Loan Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Term Loan Lender, if the Borrower
requests that the Term Loans be made on the Deferred Funding Date, a commitment
fee for the period from and including the Closing Date to the Deferred Funding
Date, computed at the rate of 1.00% per annum on the amount of the Term Loan
Commitment of such Term Loan Lender, payable on the Deferred Funding Date.
SECTION 3. AMOUNT AND TERMS OF REVOLVINGCREDIT COMMITMENTS
3.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Revolving Credit
Lender's Revolving Credit Commitment Percentage of (i) the then outstanding
Swing Line Loans, (ii) the then outstanding L/C Obligations and (iii) after
giving effect to the application of the proceeds of such Revolving Credit Loans,
the aggregate Accreted Value of the then outstanding Zero Coupon Notes, does not
exceed the amount of such Revolving Credit Lender's Revolving Credit Commitment.
During the Revolving Credit Commitment Period, the Borrower may use the
Revolving Credit Commitments by borrowing, prepaying and reborrowing Revolving
Credit Loans, all in accordance with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with subsections
3.2 and 4.2, provided that no Revolving Credit Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the Revolving Credit
Termination Date.
3.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow
under the Revolving Credit Commitments during the Revolving Credit Commitment
Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business
Days prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans, or (b) prior to
12:00 Noon, New York City time, one Business Day prior to the requested
Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the
requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar
Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be
entirely or partly of Eurodollar Loans, the respective amounts of each such Type
of Loan and the lengths of the initial Interest Periods therefor. Each
borrowing under the Revolving Credit Commitments shall be in an amount equal to
(x) in the case of ABR Loans, $3,000,000 or a whole multiple of $1,000,000 in
excess thereof (or, if the then Available Revolving Credit Commitments are less
than $3,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$3,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of
any such notice from the Borrower, the Administrative Agent shall promptly
notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will
make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in subsection 13.2 prior to 12:00 Noon, New York
City time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower on the books of such office prior to 1:00 P.M., New York City time,
on such Borrowing Date with the aggregate of
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25
the amounts made available to the Administrative Agent by the Lenders and in
like funds as received by the Administrative Agent.
3.3 Commitment Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Revolving Credit Lender a commitment fee for the
period from and including the first day of the Revolving Credit Commitment
Period to the Revolving Credit Termination Date, computed at the rate of 0.30%
per annum (the "Commitment Fee Rate") on the average daily amount of the unused
Revolving Credit Commitment (it being understood that for purposes of this
subsection 3.3, the Reserved Amount and any outstanding Swing Line Loans shall
not be deemed to be utilization of the Revolving Credit Commitment) of such
Revolving Credit Lender during the period for which payment is made,
payable quarterly in arrears on the last day of each March, June, September and
December and on the Revolving Credit Termination Date or such earlier date as
the Revolving Credit Commitments shall terminate as provided herein, commencing
on the first of such dates to occur after the date hereof, provided that, from
and after March 31, 1997, the Commitment Fee Rate will be adjusted, if required,
on each Adjustment Date, to the rate set forth on Annex A hereto opposite the
-------
Leverage Ratio Level of the Borrower in effect on such Adjustment Date and
provided, further, that, in the event that the financial statements required to
be delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable, and the
related certificate required pursuant to subsection 7.2(b), are not delivered
when due, then, during the period from the date upon which such financial
statements were required to be delivered until one Business Day following the
date upon which they actually are delivered, the Commitment Fee Rate shall be
0.375%.
3.4 Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than one Business Day's prior notice to the
Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments, provided
that no such termination or reduction shall be permitted if, after giving effect
thereto and to any prepayments of the Revolving Credit Loans and Swing Line
Loans made on the effective date thereof, the aggregate principal amount of the
Revolving Credit Loans then outstanding, when added to the then outstanding L/C
Obligations and Swing Line Loans, would exceed the Revolving Credit Commitments
then in effect. Any such reduction shall be in an amount equal to $3,000,000 or
a whole multiple of $1,000,000 in excess thereof and shall reduce permanently
the Revolving Credit Commitments then in effect. The Revolving Credit
Commitments are also subject to reduction as provided in subsection 4.1.
3.5 Repayment of Revolving Credit Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay to the Administrative Agent for
the account of each Revolving Credit Lender the then unpaid principal amount of
each Revolving Credit Loan of such Revolving Credit Lender on the Revolving
Credit Termination Date (or such earlier date on which the Revolving Credit
Loans become due and payable pursuant to Section 11). The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the Revolving
Credit Loans from time to time outstanding from the date hereof until payment in
full thereof at the rates per annum, and on the dates, set forth in subsection
4.4.
(b) Each Revolving Credit Lender shall maintain in accordance with its
usual practice an account or accounts evidencing indebtedness of the Borrower to
such Revolving Credit Lender from time to time in respect of each Revolving
Credit Loan of such Revolving Credit Lender, including the amounts of principal
and interest payable and paid to such Revolving Credit Lender in respect of such
Revolving Credit Loans from time to time under this Agreement.
(c) The Administrative Agent shall record in the Register, with separate
subaccounts for each Revolving Credit Lender, (i) the amount and Borrowing Date
of each Revolving Credit Loan, the Type thereof and each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
<PAGE>
26
payable or to become due and payable from the Borrower to each Revolving Credit
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Revolving Credit
Lender's share thereof, if any.
(d) The entries made in the Register and the accounts of each Revolving
Credit Lender maintained pursuant to subsections 3.5(a) and 3.5(b) shall, to the
extent permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; provided, however,
that the failure of any Revolving Credit Lender or the Administrative Agent to
maintain the Register or any such account, or any error therein, shall not in
any manner affect the obligation of the Borrower to repay (with applicable
interest) the Revolving Credit Loans in accordance with the terms of this
Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Revolving Credit Lender, which request is communicated to the
Borrower, the Borrower will execute and deliver to such Revolving Credit Lender
a promissory note of the Borrower, dated the Closing Date, evidencing the
Revolving Credit Loans of such Revolving Credit Lender, substantially in the
form of Exhibit D (a "Revolving Credit Note"), payable to the order of such
---------
Revolving Credit Lender and in a principal amount equal to the lesser of (A) the
Revolving Credit Commitment of such Revolving Credit Lender and (B) the
aggregate unpaid principal amount of Revolving Credit Loans of such Revolving
Credit Lender. Each Revolving Credit Lender is hereby authorized to record the
date, Type and amount of each Revolving Credit Loan of such Revolving Credit
Lender, the date and amount of each payment or prepayment of principal thereof,
each continuation of all or a portion thereof as the same Type, each conversion
of all or a portion thereof to another Type and, in the case of Eurodollar
Loans, the length of each Interest Period and Eurodollar Rate with respect
thereto, on the schedule (or any continuation of the schedule) annexed to and
constituting a part of its Revolving Credit Note, and any such recordation
shall, to the extent permitted by applicable law, constitute prima facie
evidence of the accuracy of the information so recorded, provided that the
failure to make any such recordation (or any error therein) shall not affect the
obligation of the Borrower to repay (with applicable interest) the Revolving
Credit Loans in accordance with the terms of this Agreement.
3.6 Swing Line Commitment. Subject to the terms and conditions hereof,
Chase (in such capacity, the "Swing Line Lender") agrees to make a portion of
the Revolving Credit Commitments available to the Borrower during the Revolving
Credit Commitment Period by making swing line loans ("Swing Line Loans") to the
Borrower in an aggregate principal amount not to exceed at any one time
outstanding the Swing Line Commitment; provided that (a) the aggregate principal
amount of Swing Line Loans outstanding at any time shall not exceed the
Revolving Credit Commitments at such time and (b) the Borrower shall not
request, and the Swing Line Lender shall not make, any Swing Line Loan if, after
giving effect to the making of such Swing Line Loan, the sum of (i) the
Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders at
such time and (ii) the aggregate Accreted Value of the then outstanding Zero
Coupon Notes would exceed the Revolving Credit Commitments at such time. During
the Revolving Credit Commitment Period, the Borrower may use the Swing Line
Commitment by borrowing, repaying and reborrowing Swing Line Loans all in
accordance with the terms and conditions hereof. Swing Line Loans may be ABR
Loans only.
3.7 Repayment of Swing Line Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of the Swing Line Lender the then unpaid principal amount of the Swing
Line Loans on the Revolving Credit Termination Date (or such earlier date on
which the Swing Line Loans become due and payable pursuant to Section 11). The
Borrower hereby further agrees to pay interest on the unpaid principal amount of
the Swing Line Loans
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27
from time to time outstanding from the date hereof until payment in full thereof
at the rates per annum, and on the dates, set forth in subsection 4.4.
(b) The Swing Line Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower from
time to time in respect of the Swing Line Loans made hereunder, including the
amounts of principal and interest payable and paid in respect of such Swing Line
Loans from time to time under this Agreement.
(c) The Administrative Agent shall record in the Register (i) the amount
and Borrowing Date of each Swing Line Loan, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower in
respect thereof and (iii) the amount of any sum received by the Administrative
Agent hereunder in respect of Swing Line Loans.
(d) The entries made in the Register pursuant to subsection 3.7(c)
shall, to the extent permitted by applicable law, be prima facie evidence of the
existence and amounts of the obligations of the Borrower therein recorded;
provided, however, that the failure of the Swing Line Lender or the
Administrative Agent to maintain the Register, or any error therein, shall not
in any manner affect the obligation of the Borrower to repay (with applicable
interest) the Swing Line Loans in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by the Swing Line Lender, which request is communicated to the Borrower,
the Borrower will execute and deliver to the Swing Line Lender a promissory note
of the Borrower, dated the Closing Date, evidencing the Swing Line Loans of the
Swing Line Lender, substantially in the form of Exhibit E (a "Swing Line Note"),
---------
and in a principal amount equal to the lesser of (A) the Swing Line Commitment
and (B) the aggregate unpaid principal amount of Swing Line Loans. The Swing
Line Lender is hereby authorized to record the date and amount of each Swing
Line Loan of the Swing Line Lender and the date and amount of each payment or
prepayment of principal thereof on the schedule annexed to and constituting a
part of the Swing Line Note, and any such recordation shall, to the extent
permitted by applicable law, constitute prima facie evidence of the accuracy of
the information so recorded, provided that the failure to make any such
recordation (or any error therein) shall not affect the obligation of the
Borrower to repay (with applicable interest) the Swing Line Loans in accordance
with the terms of this Agreement.
3.8 Procedure for Borrowing Swing Line Loans. Whenever the Borrower
desires that the Swing Line Lender make Swing Line Loans under subsection 3.6,
it shall give the Swing Line Lender irrevocable telephonic notice confirmed
promptly in writing (which telephonic notice must be received by the Swing Line
Lender not later than 1:00 P.M., New York City time, on the proposed Borrowing
Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing
Date (which shall be a Business Day during the Revolving Credit Commitment
Period). Each borrowing under the Swing Line Commitment shall be in a minimum
amount of $500,000. Not later than 2:00 P.M., New York City time, on the
Borrowing Date specified in a notice in respect of Swing Line Loans, the Swing
Line Lender shall make available to the Administrative Agent for the account of
the Borrower at the office of the Administrative Agent specified in subsection
12.2 an amount in immediately available funds equal to the amount of the Swing
Line Loan to be made by the Swing Line Lender. The Administrative Agent shall
make the proceeds of such Swing Line Loan available to the Borrower not later
than 3:00 p.m., New York City time, on such Borrowing Date by crediting the
account of the Borrower, on the books of such office, in like funds as received
by the Administrative Agent.
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28
3.9 Swing Line Loan Participations. (a) Notwithstanding anything herein
to the contrary, the Swing Line Lender shall not be obligated to, and, if the
Required Lenders so request, shall not, make any Swing Line Loans if a Default
or an Event of Default shall have occurred and be continuing.
(b) If prior to the repayment of any Swing Line Loan, one of the events
described in Section 11(f) shall have occurred, or at any time as the Swing Line
Lender shall request, each Revolving Credit Lender shall purchase an undivided
participating interest in an amount equal to such Revolving Credit Lender's
Revolving Credit Commitment Percentage of the aggregate principal amount of
Swing Line Loans then outstanding (the "Swing Line Participation Amount"). On
the date of such purchase, each Revolving Credit Lender shall transfer to the
Swing Line Lender, in immediately available funds, such Revolving Credit
Lender's Swing Line Participation Amount and upon receipt thereof the Swing Line
Lender shall deliver to such Revolving Credit Lender a Swing Line Loan
Participation Certificate dated the date of receipt by the Swing Line Lender of
such funds and in an amount equal to such Revolving Credit Lender's Swing Line
Participation Amount.
(c) Whenever, at any time after the Swing Line Lender has received from
any Revolving Credit Lender such Revolving Credit Lender's Swing Line
Participation Amount, the Swing Line Lender receives any payment on account of
the Swing Line Loans, the Swing Line Lender will distribute to such Revolving
Credit Lender its pro rata share of such payment (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Revolving Credit Lender's participating interest was outstanding and funded);
provided, however, that in the event that such payment received by the Swing
Line Lender is required to be returned, such Revolving Credit Lender will return
to the Swing Line Lender any portion thereof previously distributed to it by the
Swing Line Lender.
(d) Each Revolving Credit Lender's obligation to purchase participating
interests pursuant to subsection 3.9(b) shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which such
Revolving Credit Lender or the Borrower may have against the Swing Line Lender,
the Borrower or any other Person for any reason whatsoever; (ii) the occurrence
or continuance of a Default or an Event of Default; (iii) any adverse change in
the condition (financial or otherwise) of the Borrower; (iv) any breach of this
Agreement or any other Loan Document by any of the Loan Parties or any other
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
3.10 L/C Commitment. (a) Subject to the terms and conditions hereof,
the Issuing Bank, in reliance on the agreements of the other Revolving Credit
Lenders set forth in subsection 3.13(a), agrees to issue Letters of Credit for
the account of the Borrower on any Business Day during the Revolving Credit
Commitment Period in such form as may be approved from time to time by the
Issuing Bank; provided that the Issuing Bank shall have no obligation to, and
shall not, issue any Letter of Credit if, after giving effect to such issuance,
(i) the L/C Obligations would exceed the lesser of (A) the L/C Commitment and
(B) the Revolving Credit Commitments at such time or (ii) the sum of (A) the
Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders at
such time and (B) the aggregate Accreted Value of the then outstanding Zero
Coupon Notes would exceed the Revolving Credit Commitments at such time. Any
Continuing Letter of Credit shall be deemed to be issued under this Agreement on
the Closing Date and shall be a Letter of Credit for all purposes hereof (other
than subsection 3.11).
(b) Each Letter of Credit shall:
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29
(i) be denominated in Dollars and shall be either (1) a standby
letter of credit issued to support obligations of the Borrower,
contingent or otherwise, in connection with the working capital and
business needs of the Borrower in the ordinary course of business (a
"Standby Letter of Credit") or (2) a commercial letter of credit issued
in respect of the purchase of goods or services by the Borrower and its
Subsidiaries in the ordinary course of business (a "Commercial Letter of
Credit"); and
(ii) expire no later than the earlier of (A) five Business Days prior
to the Revolving Credit Termination Date and (B) one year after the date
of issuance thereof (or, with respect to Letters of Credit the L/C
Obligations in respect of which do not in the aggregate exceed
$10,000,000 at any time, two years after the date of issuance thereof),
provided that, subject
to clause (A) above and subsection (d) below, any such Letter of Credit
with an expiration date on or prior to the first anniversary of the date
of issuance thereof may, at the request of the Borrower as set forth in
the applicable Application or prior to expiration thereof, be
automatically renewed on each anniversary of the issuance thereof for an
additional period of one year unless the Issuing Bank shall have given 60
days prior written notice to the Borrower and the beneficiary of such
Letter of Credit that such Letter of Credit will not be renewed.
(c) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(d) The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law. The Issuing Bank and the Lenders agree that if
the Required Lenders otherwise direct during the existence of a Default or Event
of Default, the Issuing Bank shall take appropriate steps to prevent the
automatic extension of any Letter of Credit described in clause (b)(ii) above.
3.11 Procedure for Issuance of Letters of Credit. The Borrower may from
time to time request that the Issuing Bank issue a Letter of Credit by
delivering to the Issuing Bank at its address for notices specified herein an
Application therefor, completed to the reasonable satisfaction of the Issuing
Bank, and such other certificates, documents and other papers and information as
the Issuing Bank may reasonably request. The Issuing Bank shall notify the
Revolving Credit Lenders promptly of the receipt of any request pursuant to the
immediately preceding sentence. Upon receipt of any Application, the Issuing
Bank will process such Application and the certificates, documents and other
papers and information delivered to it in connection therewith in accordance
with its customary procedures and shall promptly issue the Letter of Credit
requested thereby (but in no event shall the Issuing Bank be required to issue
any Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing
Bank and the Borrower. The Issuing Bank shall furnish a copy of such Letter of
Credit to the Administrative Agent and the Borrower promptly following the
issuance thereof.
3.12 Fees, Commissions and Other Charges. (a) The Borrower shall pay
to the Administrative Agent, for the account of the Issuing Bank, a fronting fee
with respect to each Letter of Credit, computed for the period from the date of
issuance of such Letter of Credit or the immediately preceding L/C Fee Payment
Date, as the case may be, to the next L/C Fee Payment Date to occur thereafter
at the rate of 0.25% per annum, calculated on the basis of a 360-day year for
actual days elapsed, of the aggregate amount available to be drawn under such
Letter of Credit during the period for
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30
which such fee is calculated. Such fronting fee shall be payable in arrears on
each L/C Fee Payment Date to occur after the issuance of such Letter of Credit
and on the Revolving Credit Termination Date and shall be nonrefundable.
(b) The Borrower shall pay to the Administrative Agent, for the account
of the L/C Participants, a letter of credit commission with respect to each
Letter of Credit, computed for the period from the date of issuance of such
Letter of Credit or the immediately preceding L/C Fee Payment Date, as the case
may be, to the next L/C Fee Payment Date to occur thereafter at the rate of
1.00% per annum (the "L/C Fee Percentage"), calculated on the basis of a 360-day
year for actual days elapsed, of the aggregate amount available to be drawn
under such Letter of Credit during the period for which such fee is calculated,
to be shared ratably among the L/C Participants in accordance with their
respective Revolving Credit Commitment Percentages, provided, that from and
after March 31, 1997, the L/C Fee Percentage shall be equal to the Applicable
Margin for Eurodollar Loans in effect from time to time. Such commissions shall
be payable in arrears on each L/C Fee Payment Date to occur after the issuance
of such Letter of Credit and on the Revolving Credit Termination Date and shall
be nonrefundable.
(c) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by the Issuing Bank in issuing, effecting
payment under, amending or otherwise administering any Letter of Credit.
(d) The Administrative Agent shall, promptly following its receipt
thereof, distribute to the Issuing Bank and the L/C Participants all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this subsection.
3.13 L/C Participations. (a) The Issuing Bank irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank
to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from the Issuing Bank, on
the terms and conditions hereinafter stated, for such L/C Participant's own
account and risk an undivided interest equal to such L/C Participant's Revolving
Credit Commitment Percentage in the Issuing Bank's obligations and rights under
each Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably
agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit
for which the Issuing Bank is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Issuing Bank upon demand at the Issuing Bank's address for notices specified
herein an amount equal to such L/C Participant's Revolving Credit Commitment
Percentage of the amount of such draft, or any part thereof, which is not so
reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to subsection 3.13(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Letter of Credit is
paid to the Issuing Bank within three Business Days after the date such payment
is due, such L/C Participant shall pay to the Issuing Bank on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate, during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Bank, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to subsection
3.13(a) is not in fact made available to the Issuing Bank by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Bank shall be entitled to recover from such L/C Participant, on demand,
such amount with interest thereon calculated from such due date at the rate per
annum applicable to ABR Loans hereunder. A certificate
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31
of the Issuing Bank submitted to any L/C Participant with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Issuing Bank has made payment under
any Letter of Credit and has received from any L/C Participant its pro rata
share of such payment in accordance with subsection 3.13(a), the Issuing Bank
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Bank), or any payment of interest on account thereof, the Issuing Bank
will distribute to such L/C Participant its pro rata share thereof; provided,
however, that in the event that any such payment received by the Issuing Bank
shall be required to be returned by the Issuing Bank, such L/C Participant shall
return to the Issuing Bank the portion thereof previously distributed by the
Issuing Bank to it.
3.14 Reimbursement Obligation of the Borrower. (a) The Issuing Bank
shall notify the Borrower promptly of each drawing under a Letter of Credit.
The Borrower agrees to reimburse the Issuing Bank on the Business Day
immediately following each date on which the Issuing Bank notifies the Borrower
of the date and amount of a draft presented under any Letter of Credit and paid
by the Issuing Bank for the amount of (i) such draft so paid and (ii) any taxes,
fees, charges or other costs or expenses incurred by the Issuing Bank in
connection with such payment. Each such payment shall be made to the Issuing
Bank at its address for notices specified herein in lawful money of the United
States of America and in immediately available funds.
(b) Interest shall be payable on any and all amounts remaining unpaid by
the Borrower under this subsection 3.14 (i) from the date the draft presented
under the affected Letter of Credit is paid to the date on which the Borrower is
required to pay such amounts pursuant to paragraph (a) of this subsection at the
rate which would then be payable on ABR Loans and (ii) thereafter, until payment
in full at the rate which would be payable on any ABR Loans which were then
overdue.
(c) Each drawing under any Letter of Credit shall constitute a request
by the Borrower to the Administrative Agent for a borrowing pursuant to
subsection 3.2 of ABR Loans in the amount of such drawing (but without any
requirement for compliance with the conditions set forth in subsection 6.2).
The Borrowing Date with respect to such borrowing shall be the Business Day
immediately following the date of such drawing and each Revolving Credit Lender
shall make its Revolving Credit Commitment Percentage of such borrowing
available to the Administrative Agent on such date to be used to repay the
Reimbursement Obligation created by such drawing. The Issuing Bank shall notify
the Revolving Credit Lenders promptly of each drawing under a Letter of Credit
to be reimbursed pursuant to this subsection 3.14(c). The application of such
Loans shall satisfy the Borrower's obligations under subsection 3.14(a) in the
amount thereof.
3.15 Obligations Absolute. (a) The Borrower's obligations under
subsection 3.14 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Issuing Bank, any
Lender or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Bank and the Lenders that
neither the Issuing Bank nor any Lender shall be responsible for, and the
Borrower's Reimbursement Obligations under subsection 3.14(a) shall not be
affected by, among other things, (i) the validity or genuineness of documents or
of any endorsements thereon, even though such documents shall in fact prove to
be invalid, fraudulent or forged, or (ii) any dispute between or among the
Borrower and any beneficiary of any Letter of Credit or any other party to which
such Letter of Credit may be transferred or (iii) any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee.
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(c) The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors, omissions, interruptions or delays caused by the Issuing Bank's gross
negligence or willful misconduct.
(d) The Borrower agrees that any action taken or omitted by the Issuing
Bank under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Customs, and
to the extent not inconsistent therewith, the Uniform Commercial Code of the
State of New York, shall be binding on the Borrower and shall not result in any
liability of the Issuing Bank to the Borrower.
3.16 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Bank shall, within a reasonable
time after its receipt thereof, examine all documents purporting to represent a
demand for payment under such Letter of Credit to ascertain that the same appear
on their face to be in conformity with the terms and conditions of such Letter
of Credit. The Issuing Bank shall also promptly notify the Borrower of the date
and amount thereof. The responsibility of the Issuing Bank to the Borrower in
connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
3.17 Application. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
3.18 Reservation of Commitments. It is acknowledged and agreed that a
portion of the Revolving Credit Commitments in an amount equal to the then
aggregate Accreted Value of the outstanding Zero Coupon Notes (the "Reserved
Amount") shall be reserved for, and may only initially be used to fund, the
redemption, repurchase or prepayment of such Zero Coupon Notes. At any time
after the redemption, repurchase or prepayment in full of the Zero Coupon Notes,
the Borrower shall be permitted to borrow under the Revolving Credit Commitments
in accordance with the terms hereof without regard to any limitation contained
herein with respect to the Zero Coupon Notes. If the Aggregate Revolving Credit
Outstandings of all the Revolving Credit Lenders shall at any time exceed the
difference between the Revolving Credit Commitments and the Reserved Amount, the
Borrower shall promptly prepay Revolving Credit Loans and/or cash collateralize
Letters of Credit in accordance with subsection 4.1(c) in an aggregate amount
equal to the amount of such excess.
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS
AND LETTERS OF CREDIT
4.1 Optional and Mandatory Prepayments. (a) The Borrower may at any
time and from time to time prepay the Loans, in whole or in part, without
premium or penalty, upon irrevocable notice to the Administrative Agent prior to
11:00 a.m., New York City time, one Business Day prior to such prepayment,
specifying the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans, ABR Loans or a combination thereof, and, if of a combination
thereof, the amount allocable to each. Upon receipt of any such notice the
Administrative Agent shall notify each affected Lender thereof on the date of
receipt of such notice. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with any amounts payable pursuant to
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subsection 4.11 and, in the case of prepayments of the Term Loans, accrued
interest to such date on the amount prepaid. Amounts prepaid on account of the
Term Loans may not be reborrowed. Partial prepayments shall be in an aggregate
principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. All optional prepayments of the Term Loans shall be applied to the
remaining installments of principal thereof pro rata.
(b) Unless the Required Lenders otherwise agree, the Term Loans shall be
prepaid and the Revolving Credit Commitments shall be permanently reduced (and,
in connection with any such reduction, the Swing Line Loans and Revolving Credit
Loans shall be prepaid and/or the Letters of Credit shall be cash collateralized
as provided in subsection 4.1(c)) as set forth in subsection 4.1(c) in an amount
equal to 100% of the Net Proceeds of any Asset Sale by Holdings, the Borrower or
any of their Subsidiaries or any Casualty Event suffered by the Borrower or any
of its Subsidiaries, provided that, if the Net Proceeds realized from any such
Asset Sale (or series of related Asset Sales) is equal to or less than
$1,000,000, such Net Proceeds shall not result in any prepayment or reduction
pursuant to this subsection. Notwithstanding anything to the contrary contained
in this subsection 4.1(b), so long as no Default or Event of Default has
occurred or is continuing or would result therefrom, the Borrower may elect, by
notice to the Administrative Agent, to retain, without compliance with respect
thereto with this subsection 4.1(b), up to $35,000,000 in the aggregate of Net
Proceeds from Asset Sales and Casualty Events occurring after the Closing Date
which the Borrower would otherwise be required to apply to prepayment of the
Term Loans and the reduction of the Revolving Credit Commitments (and, in
connection with any such reduction, the prepayment of Swing Line Loans and
Revolving Credit Loans and/or the cash collateralization of Letters of Credit as
provided in subsection 4.1(c)). Except as otherwise provided in this subsection
4.1(b), each prepayment required pursuant to this subsection 4.1(b) shall be
made, and each reduction of Revolving Credit Commitments pursuant to this
subsection shall be effective, on the third Business Day following receipt of
the Net Proceeds from the relevant Asset Sale or Casualty Event.
(c) All mandatory prepayments of Loans and all reductions of Revolving
Credit Commitments pursuant to subsection 4.1(b) shall be made in the following
order of priority: first the remaining installments of the Term Loans shall be
prepaid pro rata, and second, after the Term Loans shall have been prepaid in
full, the Revolving Credit Commitments shall be reduced (and, to the extent that
there are any Swing Line Loans and Revolving Credit Loans outstanding, the Swing
Line Loans and the Revolving Credit Loans shall be prepaid (with the Swing Line
Loans to be prepaid first) in an aggregate amount equal to the lesser of (i) the
amount of such reduction and (ii) the aggregate principal amount of then
outstanding Swing Line Loans and Revolving Credit Loans). If, after giving
effect to any reduction of the Revolving Credit Commitments and any prepayment
of the Swing Line Loans and Revolving Credit Loans in accordance with the
preceding sentence, the Aggregate Revolving Credit Outstandings of the Revolving
Credit Lenders exceeds the Revolving Credit Commitments at such time, the
Borrower shall, without notice or demand, immediately deposit in a Cash
Collateral Account upon terms reasonably satisfactory to the Administrative
Agent an amount equal to the then outstanding L/C Obligations. The
Administrative Agent shall apply any cash deposited in the Cash Collateral
Account (to the extent thereof) to pay any L/C Obligations as such L/C
Obligations become due and payable. "Cash Collateral Account" means an account
established by the Borrower with the Administrative Agent and over which the
Administrative Agent shall have exclusive dominion and control, including the
right of withdrawal for application in accordance with this subsection 4.1(c).
The Administrative Agent will, at the request of the Borrower, invest amounts on
deposit in the Cash Collateral Account in Cash Equivalents with a tenor
acceptable to the Administrative Agent, provided that (i) the Administrative
Agent shall not be required to make any investment that, in its sole judgment,
would require or cause the Administrative Agent to be in, or would result in
any, violation of any Requirement of Law and (ii) the Administrative Agent shall
have no obligation to invest amounts on deposit in the Cash Collateral Account
if a Default or Event of
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34
Default shall have occurred and be continuing. The Borrower shall indemnify the
Administrative Agent for any losses relating to the investments so that the
amount available to pay the relevant L/C Obligations when due and payable is not
less than the amount that would have been available had no investments been
made. Other than any interest earned on such investments, the Cash Collateral
Account shall not bear interest. Interest or profits, if any, on such
investments shall be deposited and reinvested and disbursed as described above.
The Borrower hereby grants to the Administrative Agent, for its benefit and the
benefit of the Lenders, a security interest in the Cash Collateral Account and
in any Cash Equivalents in which the Administrative Agent has invested any
amounts in the Cash Collateral Account and in the proceeds of each thereof to
secure the Obligations.
(d) Amounts to be applied pursuant to this subsection 4.1 to the
prepayment of Term Loans and Revolving Credit Loans shall be applied first to
reduce outstanding Term Loans and Revolving Credit Loans which are ABR Loans.
Any amounts remaining after such application shall be applied to prepay
Term Loans and Revolving Credit Loans which are Eurodollar Loans immediately
and/or shall be deposited in the Prepayment Account (as defined below). The
Administrative Agent shall apply any cash deposited in the Prepayment Account
(i) allocable to Term Loans to prepay Term Loans which are Eurodollar Loans and
(ii) allocable to Revolving Credit Loans to prepay Revolving Credit Loans which
are Eurodollar Loans, in each case on the last day of the respective Interest
Periods therefor (or, at the direction of the Borrower, on any earlier date)
until all outstanding Term Loans and/or Revolving Credit Loans which are
Eurodollar Loans have been prepaid or until all cash on deposit in the
Prepayment Account with respect to such Loans has been exhausted. For purposes
of this Agreement, the term "Prepayment Account" shall mean an account
established by the Borrower with the Administrative Agent and over which the
Administrative Agent shall have exclusive dominion and control, including the
right of withdrawal for application in accordance with this subsection 4.1(d).
The Administrative Agent will, at the request of the Borrower, invest amounts on
deposit in the Prepayment Account in Cash Equivalents that mature prior to the
last day of the applicable Interest Periods of the Eurodollar Loans to be
prepaid, provided that (i) the Administrative Agent shall not be required to
make any investment that, in its sole judgment, would require or cause the
Administrative Agent to be in, or would result in any, violation of any
Requirement of Law and (ii) the Administrative Agent shall have no obligation to
invest amounts on deposit in the Prepayment Account if a Default or Event of
Default shall have occurred and be continuing. The Borrower shall indemnify the
Administrative Agent for any losses relating to the investments so that the
amount available to prepay Eurodollar Loans on the last day of the applicable
Interest Periods therefor is not less than the amount that would have been
available had no investments been made. Other than any interest earned on such
investments, the Prepayment Account shall not bear interest. Interest or
profits, if any, on such investments shall be deposited and reinvested and
disbursed as described above. The Borrower hereby grants to the Administrative
Agent, for its benefit and the benefit of the Lenders, a security interest in
the Prepayment Account and in any Cash Equivalents in which the Administrative
Agent has invested any amounts in the Prepayment Account and in the proceeds of
each thereof to secure the Obligations.
4.2 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least one Business Day's prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto (or on any other
day if on the date of such conversion the Borrower pays to the Administrative
Agent for the account of the applicable Lenders accrued interest on such
Eurodollar Loans to the date of such conversion together with all amounts
payable under subsection 4.11). The Borrower may elect from time to time to
convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at
least three Business Days' prior irrevocable notice of such election. Any such
notice of conversion to Eurodollar Loans shall specify the length of the initial
Interest Period or Interest Periods therefor. Upon receipt of any such notice
the
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35
Administrative Agent shall promptly notify each affected Lender thereof.
All or any part of outstanding Eurodollar Loans and ABR Loans may be converted
as provided herein, provided that (i) no Loan may be converted into a Eurodollar
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Term Loan Lenders or the Required
Revolving Credit Lenders, as the case may be, have determined that such a
conversion is not appropriate and (ii) no Loan may be converted into a
Eurodollar Loan after the date that is one month prior to the Revolving Credit
Termination Date (in the case of conversions of Revolving Credit Loans) or the
date of the final installment of principal of the Term Loans (in the case of
conversions of Term Loans).
(b) Any Eurodollar Loans may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the Borrower giving
notice to the Administrative Agent, in accordance with the applicable provisions
of the term "Interest Period" set forth in subsection 1.1, of the length of the
next Interest Period to be applicable to such Loans, provided that no Eurodollar
Loan may be continued as such (i) when any Event of Default has occurred and is
continuing and the Administrative Agent has or the Required Term Loan Lenders or
the Required Revolving Credit Lenders, as the case may be, have determined that
such a continuation is not appropriate or (ii) after the date that is one month
prior to the Revolving Credit Termination Date (in the case of continuations of
Revolving Credit Loans) or the date of the final installment of principal of the
Term Loans (in the case of continuations of Term Loans) and provided, further,
that if the Borrower shall fail to give such notice or if such continuation is
not permitted the affected Eurodollar Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period.
4.3 Minimum Amounts and Maximum Number of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Eurodollar Tranche shall be equal to $3,000,000 or
a whole multiple of $1,000,000 in excess thereof. In no event shall there be
more than ten Eurodollar Tranches outstanding at any time.
4.4 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any commitment fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise, but taking into account any applicable grace period
under Section 11(a)), such overdue amount shall bear interest at a rate per
annum which is (x) in the case of overdue principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection plus 2% or (y) in the case of overdue interest, commitment fees or
other amounts due and payable hereunder, the rate described in subsection 4.4(b)
plus 2%, in each case from the date of such non-payment until such amount is
paid in full (after as well as before judgment).
(d) Interest shall be payable in arrears on each applicable Interest
Payment Date and the Revolving Credit Termination Date, provided that interest
accruing pursuant to subsection 4.4(c) shall be payable from time to time on
demand.
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36
4.5 Computation of Interest and Fees. (a) Commitment fees and interest
shall be calculated on the basis of a 360-day year for the actual days elapsed,
except that whenever interest is calculated on the basis of the Prime Rate,
interest shall be calculated on the basis of a 365- (or 366-, as the case may
be) day year for the actual days elapsed. The Administrative Agent shall as
soon as practicable, notify the Borrower and the affected Lenders of each
determination of a Eurodollar Rate. Any change in the interest rate on a Loan
resulting from a change in the ABR or the Eurocurrency Reserve Requirement shall
become effective as of the opening of business on the day on which such change
becomes effective. The Administrative Agent shall, as soon as practicable,
notify the Borrower and the affected Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to subsection 4.4(a).
4.6 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Required Term Loan Lenders or the Required Revolving Credit Lenders, as
appropriate, that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the affected Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as ABR Loans, (y) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall
be converted, on the first day of such Interest Period, to ABR Loans. Until
such notice has been withdrawn by the Administrative Agent or the Required Term
Loan Lenders or the Required Revolving Credit Lenders, as the case may be, no
further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert ABR Loans to Eurodollar Loans.
4.7 Pro Rata Treatment and Payments. (a) All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 12:30 P.M., New York City time, on the
due date thereof to the Administrative Agent, for the account of the Revolving
Credit Lenders or the Term Loan Lenders, as the case may be, at the
Administrative Agent's office specified in subsection 13.2, in Dollars and in
immediately available funds. Payments received by the Administrative Agent
after such time shall be deemed to have been received on the next Business Day.
The Administrative Agent shall distribute such payments to the Lenders entitled
to receive the same promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then
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37
applicable rate during such extension. If any payment on a Eurodollar Loan
becomes due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day (and, with respect to
payments of principal, interest shall be payable thereon at the then applicable
rate during such extension) unless the result of such extension would be to
extend such payment into another calendar month, in which event such payment
shall be made on the immediately preceding Business Day.
(b) Unless the Administrative Agent shall have been notified in writing
by any Lender prior to a borrowing that such Lender will not make the amount
that would constitute its portion of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this subsection shall be conclusive in the
absence of manifest error. If such Lender's portion of such borrowing is not
made available to the Administrative Agent by such Lender within three Business
Days of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans hereunder, on demand, from the Borrower, without prejudice to any
right or claim the Borrower may have against such Lender.
(c) Each borrowing by the Borrower of Term Loans and Revolving Credit
Loans shall be made ratably from the Term Loan Lenders and Revolving Credit
Lenders, respectively, in accordance with their respective Term Loan Commitment
Percentages and Revolving Credit Commitment Percentages. Any reduction of the
Revolving Credit Commitments shall be made ratably among the Revolving Credit
Lenders, in accordance with their respective Revolving Credit Commitment
Percentages.
4.8 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof occurring after the date hereof shall make it unlawful for
any Lender to make or maintain Eurodollar Loans as contemplated by this
Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans,
continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans
shall forthwith be suspended until such time as it shall no longer be unlawful
for such Lender to make or maintain Eurodollar Loans as contemplated by this
Agreement and (b) such Lender's Loans then outstanding as Eurodollar Loans, if
any, shall be converted automatically to ABR Loans on the respective last days
of the then current Interest Periods with respect to such Loans or within such
earlier period as required by law. If any such conversion of a Eurodollar Loan
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, the Borrower shall pay to such Lender such amounts, if
any, as may be required pursuant to subsection 4.11.
4.9 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Letter of Credit, any
Application or any Eurodollar Loan made by
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38
it, or change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes and changes in the rate of tax on
the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not otherwise
included in the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall, within 10 Business Days
after receipt by the Borrower of such Lender's written demand (with a copy to
the Administrative Agent), pay such Lender such additional amount or amounts as
will compensate such Lender for such increased cost or reduced amount
receivable. If any Lender has demanded compensation under this subsection 4.9(a)
with respect to any Eurodollar Loan, the Borrower shall have the option to
convert immediately such Eurodollar Loan into an ABR Loan until the
circumstances giving rise to such demand for compensation no longer apply;
provided, that (i) no such conversion shall affect the Borrower's obligation to
pay compensation as provided herein which is due with respect to the period
prior to such conversion and (ii) on the date of such conversion the Borrower
shall pay to the Administrative Agent for the benefit of the relevant Lender
accrued interest on such Eurodollar Loan to the date of conversion, together
with any amounts payable pursuant to subsection 4.11.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority, in each case made subsequent to the date hereof, shall have the
effect of reducing the rate of return on such Lender's or such corporation's
capital as a consequence of its obligations hereunder or under any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time,
within 10 Business Days after receipt by the Borrower of such Lender's written
demand (with a copy to the Administrative Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to subsection 4.9(a) or (b), it shall promptly notify the Borrower
(with a copy to the Administrative Agent) of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable pursuant
to this subsection submitted by such Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
Borrower shall not be obligated to compensate any Lender pursuant to this
subsection 4.9 for amounts accruing prior to the date which is 180 days before
the date such Lender notifies the Borrower of the event by reason of which it
has become entitled additional amounts pursuant to subsection 4.9(a) or (b),
provided that such notice need not include a computation of amounts in respect
thereof. The agreements in this subsection shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
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39
4.10 Taxes. (a) Except as required by law, all payments made by the
Borrower under this Agreement and any Notes shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding taxes imposed on the
Administrative Agent or any Lender (or Transferee) as a result of any future,
present or former connection between the Administrative Agent or such Lender (or
Transferee) and the jurisdiction of the Governmental Authority imposing such tax
or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender
(or Transferee) having executed, delivered or performed its obligations or
received a payment under, or enforced, this Agreement or any Note or any other
Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Administrative Agent or any Lender
(or Transferee) hereunder or under any Note, the amounts so payable
to the Administrative Agent or such Lender (or Transferee) shall be increased
("increased amounts") to the extent necessary to yield to the Administrative
Agent or such Lender (or Transferee) (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the Borrower shall
not be required to pay any increased amounts in the circumstances described in
subparagraph (c) of this subsection. Whenever any Non-Excluded Taxes are
payable by the Borrower under the provisions of this subsection 4.10, the
Borrower shall (i) pay such Taxes when due and (ii) promptly send to the
Administrative Agent for its own account or for the account of such Lender (or
Transferee), as the case may be, a certified copy of an original official
receipt received by the Borrower showing payment thereof or other evidence of
remittance of Non-Excluded Taxes reasonably acceptable to the Administrative
Agent. If the Borrower fails to comply with clauses (i) or (ii) of the previous
sentence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure including the
amount of Non-Excluded Taxes paid by such Lender (or Transferee) or the
Administrative Agent, as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
The agreements in this subsection 4.10 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender (and each Transferee) that is not incorporated or
organized under the laws of the United States of America or a state thereof
shall:
(i) in the case of a Lender or Assignee that is a "bank" under
Section 881(c)(3)(A) of the Code, or any Loan Participant;
(A) on or before the date it becomes a party to this Agreement (or,
in the case of a Loan Participant, on or before the date such Loan
Participant becomes a Loan Participant hereunder) and on or before the
date, if any, such Lender (or Transferee) changes its applicable
lending office by designating a different lending office (a "New
Lending Office") deliver to the Borrower and the Administrative Agent
(or, in the case of a Participant, the Lender from which such
participation was acquired) (y) two properly completed and duly
executed copies of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be, and (z) an
Internal Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be;
(B) deliver to the Borrower and the Administrative Agent (or, in the
case of a Participant, the Lender from which such participation was
acquired) two further properly
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40
completed and duly executed copies of any such form or certification
on or before the date that any such form or certification expires or
becomes obsolete and after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the
Borrower (or, in the case of a Participant, the Lender from which such
participation was acquired) or upon the request of the Borrower or the
Administrative Agent (or, in the case of a Participant, the Lender
from which such participation was acquired); and
(C) obtain such extensions of time for filing and completing such
forms or certifications as may reasonably be requested by the Borrower
(or, in the case of a Participant, the Lender from which such
participation was acquired);
(ii) in the case of a Lender or Assignee that is not a "bank"
under Section 881(c)(3)(A) of the Code:
(A) on or before the date it becomes a party to this Agreement
deliver to the Borrower and the Administrative Agent (I) in the form
of Exhibit I (an "Exemption Certificate") certifying under penalties
of perjury that such Lender is eligible for a complete exemption from
withholding on any payment hereunder under Section 881(c) of the Code
and (II) a properly completed and duly executed Internal Revenue
Service Form W-8 or applicable successor form;
(B) deliver to the Borrower and the Administrative Agent two
further properly completed and duly executed copies of said Exemption
Certificate at least annually and said Form W-8, or any successor
applicable form on or before the date that any such Form W-8 expires
or becomes obsolete or, in either case, after the occurrence of any
event requiring a change in the most recent form previously delivered
by it to the Borrower or upon the request of the Borrower; and
(C) obtain such extensions of time for filing and completing such
forms or certifications as may be reasonably requested by the Borrower
or the Administrative Agent;
and each Lender (or Transferee) that is incorporated or organized under the laws
of the United States of America or a state thereof shall provide two properly
completed and duly executed copies of Form W-9, or successor applicable form, at
the times specified for delivery of forms under paragraph (b)(i) of this
subsection unless, in any such case, any change in law or regulation has
occurred subsequent to the date such Lender (or Transferee) became a party to
this Agreement (or in the case of a Loan Participant, the date such Loan
Participant became a Loan Participant hereunder) which renders all such forms
inapplicable or which would prevent such Lender from properly completing and
executing any such form with respect to it and such Lender so advises the
Borrower and the Administrative Agent in writing no later than 15 calendar days
before any payment hereunder or under any Note is due. Each such Lender (and
each Transferee) shall certify (i) in the case of a Form 1001 or 4224, that it
is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax.
(c) The Borrower shall not be required to indemnify any Lender (or
Transferee), or to pay any increased amounts to any Lender (or Transferee) in
respect of any Non-Excluded Tax, pursuant to this subsection 4.10 to the extent
that (i) any obligation to withhold or deduct amounts with respect to
<PAGE>
41
taxes existed on the date such Lender (or Transferee) became a party to this
Agreement (or, in the case of a Loan Participant, on the date such Loan
Participant became a Loan Participant hereunder) or, with respect to payments to
a New Lending Office, the date such Lender (or Transferee) designated such New
Lending Office with respect to a Loan; provided, however, that this clause (i)
shall not apply to any Transferee or New Lending Office that becomes a
Transferee or New Lending Office as a result of an assignment, participation,
transfer or designation made at the written request of the Borrower, or (ii) any
Lender (or Transferee) fails to comply in full with the provisions of subsection
4.10(b) hereof.
(d) If the Administrative Agent or any Lender (or Transferee) receives a
refund in respect of Non-Excluded Taxes paid by the Borrower, which in the good
faith judgment of such Lender is allocable to such payment, it shall promptly
pay such refund, together with any other amounts paid by the Borrower in
connection with such refunded Non-Excluded Taxes, to the Borrower, net of all
out-of-pocket expenses of such Lender incurred in obtaining such refund,
provided, however, that the Borrower agrees to promptly return such refund to
the Administrative Agent or the applicable Lender (or Transferee), as the case
may be, if it receives notice from the Administrative Agent or applicable Lender
(or Transferee) that such Administrative Agent or Lender (or Transferee) is
required to repay such refund.
4.11 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense (other than the loss of any
payments in respect of the Applicable Margin) which such Lender may sustain or
incur as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar
Loan after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans or converting any Eurodollar Loans to ABR Loans on a day which is not the
last day of an Interest Period with respect thereto. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, converted
or continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of such Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) the amount of interest (as
reasonably determined by such Lender) which would have accrued to such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
4.12 Change of Lending Office; Filing of Certificates or Documents.
Each Lender agrees that if it makes any demand for payment, or becomes entitled
to any increased amounts, under subsection 4.8, 4.10 or 4.11(a) or if any
adoption or change of the type described in subsection 4.9 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to designate
a different lending office or file any certificate or document reasonably
requested in writing by the Borrower if such action would reduce or obviate the
need for the Borrower to make payments under subsection 4.8, 4.10 or 4.11(a) or
would eliminate or reduce the effect of any adoption or change described in
subsection 4.9.
4.13 Replacement Lenders. In the event that the Borrower becomes
obligated to pay additional amounts or increased amounts to, or receives notice
from, any Lender pursuant to subsection 4.8, 4.9 or 4.10 then, unless such
Lender has theretofore removed or cured the conditions
<PAGE>
42
which result in the obligation to pay such additional amounts or increased
amounts, the Borrower may, on ten Business Days' prior written notice to the
Administrative Agent and such Lender, cause such Lender to (and such Lender
shall) assign pursuant to subsection 13.6(c) all of its rights and obligations
under this Agreement to another bank or financial institution which is willing
to become a Lender and is acceptable (which acceptance shall not be unreasonably
withheld) to the Administrative Agent, for a purchase price equal to the
outstanding principal amount of the Loans payable to such Lender plus any
accrued but unpaid interest on such Loans, any accrued but unpaid commitment
fees in respect of such Lender's Commitment and any other amounts payable to
such Lender under this Agreement (including, without limitation, amounts payable
under subsection 4.11).
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdings and the Borrower hereby jointly and severally represent and
warrant to the Administrative Agent and each Lender that:
5.1 Financial Condition. (a) The consolidated balance sheet of
Holdings and its consolidated Subsidiaries as at December 31, 1995 and the
related consolidated statements of operations and of cash flows for the fiscal
year ended on such date, reported on by Ernst & Young LLP, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the consolidated financial condition of Holdings and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. The unaudited
consolidated balance sheet of Holdings and its consolidated Subsidiaries as at
March 31, 1996 and the related unaudited consolidated statements of operations
and of cash flows for the three-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidated financial
condition of Holdings and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the three-month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the related schedules
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants and as
disclosed therein). Except as disclosed in the Preliminary Prospectus, neither
Holdings nor any of its consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction, which is not reflected in
the foregoing statements or in the notes thereto. During the period from
December 31, 1995 to and including the date of this Agreement there has been no
sale, transfer or other disposition by Holdings or any of its consolidated
Subsidiaries of any material part of its or their business or property and no
purchase or other acquisition of any business or property (including any Capital
Stock of any other Person) material in relation to the consolidated financial
condition of Holdings and its consolidated Subsidiaries at December 31, 1995.
(b) The unaudited pro forma consolidated balance sheet of Holdings and
its consolidated Subsidiaries as at March 31, 1996, and the unaudited pro forma
consolidated income statements of Holdings and its consolidated Subsidiaries for
the fiscal year ended December 31, 1995 and the three-month period ended on
March 31, 1996, certified by a Responsible Officer of Holdings, copies of which
have been heretofore furnished to each Lender, adjusted to give effect to (as if
such events had occurred on such date) (i) the IPO, (ii) the Private Placement,
(iii) the Refinancing, (iv) the initial Extensions of Credit to the Borrower
hereunder, and (v) the fees, expenses and financing costs related to the
foregoing, together with the notes thereto, were prepared based on good faith
assumptions and on the best
<PAGE>
43
information available to Holdings and the Borrower as of the date of delivery
thereof and fairly present on a pro forma basis the consolidated financial
position of Holdings and its consolidated Subsidiaries as at March 31, 1996, as
adjusted, as described above, assuming such events had occurred at such date.
5.2 No Change. (a) Since December 31, 1995, and except as otherwise
disclosed in the Preliminary Prospectus, there has been no development or event
which has had or could reasonably be expected to have a Material Adverse Effect,
and (b) during the period from the Closing Date to and including the date of
this Agreement no dividends or other distributions have been declared, paid or
made upon the Capital Stock of Holdings nor has any of the Capital Stock of
Holdings been redeemed, retired, purchased or otherwise acquired for value by
Holdings or any of its Subsidiaries except as effected pursuant to the
Reclassification and except as disclosed in the financial statements referred to
in subsection 5.1.
5.3 Corporate Existence; Compliance with Law. Each Loan Party (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified or
licensed to do business as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification except where the failure
to be so qualified and/or in good standing, in the aggregate is not reasonably
likely to have a Material Adverse Effect and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith is
not, in the aggregate, reasonably likely to have a Material Adverse Effect.
5.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan
Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the Extensions of Credit on the terms and
conditions of this Agreement and any Notes and to authorize the execution,
delivery and performance by it of the Loan Documents to which it is a party. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required to be
obtained or made by any Loan Party in connection with the Extensions of Credit
hereunder or with the execution, delivery or performance by each applicable Loan
Party or the validity or enforceability with respect to or against any Loan
Party of the Loan Documents to which it is a party. This Agreement has been,
and each other Loan Document will be, duly executed and delivered on behalf of
each Loan Party that is a party thereto. This Agreement constitutes, and each
other Loan Document when executed and delivered will constitute, a legal, valid
and binding obligation of each Loan Party that is a party thereto enforceable
against such Loan Party in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
5.5 No Legal Bar. The execution, delivery and performance of the Loan
Documents, the Extensions of Credit hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual Obligation of any
Loan Party and will not result in, or require, the creation or imposition of any
Lien on any of its or their respective properties or revenues pursuant to any
such Requirement of Law or Contractual Obligation other than as contemplated in
or permitted by the Loan Documents.
<PAGE>
44
5.6 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against any Loan Party or against
any of their respective properties or revenues (a) with respect to any of the
Loan Documents or any of the transactions contemplated hereby or thereby or (b)
which has a reasonable possibility of an adverse determination, and if adversely
determined, is reasonably likely to have a Material Adverse Effect.
5.7 No Default. No Loan Party is in default under or with respect to
any of its Contractual Obligations in any respect which is reasonably likely to
have a Material Adverse Effect. No Default or Event of Default has occurred and
is continuing.
5.8 Ownership of Property; Liens. Each Loan Party has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
real property except for such matters as do not materially adversely affect the
use of the property in the conduct of the business as currently conducted, and
good title to, or a valid leasehold interest in, all its other material
property, and none of such property is subject to any Lien except as permitted
by subsection 8.3.
5.9 Intellectual Property. (a) Each Loan Party owns, or is licensed to
use, all material patents, trademarks (registered or unregistered), trade names,
service marks, assumed names and copyrights (such items, together with all
applications therefor and all other material intellectual property and
proprietary rights, whether or not subject to statutory registration or
protection, of the Borrower or any of its Subsidiaries that are used in or
necessary for the conduct of the business of the Borrower and its Subsidiaries
being collectively referred to herein as the "Intellectual Property") necessary
for the conduct of its business except for those the failure to own or license
which is not reasonably likely to have a Material Adverse Effect and (b) no
claim of which Holdings has been given notice has been asserted and is pending
by any Person challenging or questioning the use of any such Intellectual
Property or the validity or effectiveness of any such Intellectual Property, nor
does Holdings know of any valid basis for any such claim, except for such claims
that, in the aggregate, are not reasonably likely to have a Material Adverse
Effect.
5.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation applicable to any Loan Party is reasonably likely to have a Material
Adverse Effect.
5.11 Taxes. Holdings and the Borrower and its Subsidiaries have filed
or caused to be filed all tax returns which, to the knowledge of Holdings and
its Subsidiaries, are required to be filed in respect of periods subsequent to
the Closing Date and have paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property in respect
of such periods and all other material taxes imposed on it or any of its
property by any Governmental Authority (other than any taxes the amount or
validity of which are being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided on
the books of the applicable Loan Party and other than any taxes which in the
aggregate would not have a Material Adverse Effect as the case may be) in
respect of such periods; no tax lien has been filed (except as permitted by
subsection 8.3).
5.12 Federal Regulations. No part of the proceeds of any Extension of
Credit will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or Regulation
U of the Board of Governors as now and from time to time hereafter in effect.
If requested by any Lender or the Administrative Agent, the Borrower will
furnish to the Administrative Agent and each Lender a statement to the foregoing
effect in conformity with the
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45
requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or
Regulation U, as the case may be.
5.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code, except where, in connection with any such event or non-compliance,
the liability which would be likely to result is not reasonably likely to have a
Material Adverse Effect. No termination of a Single Employer Plan has occurred
except where, in connection with any such termination, the liability which would
be likely to result is not reasonably likely to have a Material Adverse Effect,
and no Lien (except as
permitted by subsection 8.3) which remains unsatisfied in favor of the PBGC or a
Plan has arisen, during such five-year period. The present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits by an amount in excess of
$15,000,000. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan; neither the Borrower
nor any Commonly Controlled Entity would become subject to any liability under
ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date most closely
preceding the date on which this representation is made or deemed made; and no
such Multiemployer Plan is in Reorganization or Insolvent, except where, in any
such case, the liability which would be likely to result is not reasonably
likely to have a Material Adverse Effect.
5.14 Investment Company Act; Other Regulations. No Loan Party is, or is
"controlled" by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. The Borrower is not subject to regulation
under any Federal or State statute or regulation (other than Regulation X of the
Board of Governors) which limits its ability to incur Indebtedness as
contemplated herein.
5.15 Subsidiaries. The Subsidiaries of Holdings and the Borrower, as
set forth in Schedule 5.15, constitute all the Subsidiaries of Holdings and the
-------------
Borrower as of the Closing Date. The Material Subsidiaries of the Borrower, as
set forth in Schedule 5.15, constitute all the Material Subsidiaries of the
-------------
Borrower as of the Closing Date.
5.16 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrower to refinance and repurchase existing indebtedness of Holdings and of
the Borrower and its Subsidiaries pursuant to the Refinancing (including the
payment of prepayment premiums and the Zero Coupon Total Consideration pursuant
to the Zero Coupon Tender Offer and the payment of fees and expenses relating to
the IPO, the Private Placement and the Refinancing) and for general corporate
purposes in the ordinary course of business.
5.17 Environmental Matters. Except to the extent that the inaccuracy of
any of the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect and except as described in the Preliminary Prospectus:
(a) The facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain any
Hazardous Materials in amounts or concentrations which (i) constitute a
violation of, or (ii) could give rise to any liability under,
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46
any Environmental Law or could interfere with the continued operation of
the Properties or could reasonably be expected to impair the fair
saleable value thereof.
(b) The Borrower and its Subsidiaries and the Properties are in
compliance, and to the knowledge of the Borrower and its Subsidiaries
have in the last three years been in compliance with all applicable
Environmental Laws and applicable Environmental Permits, and the Borrower
and its Subsidiaries reasonably believe that they will be able to comply
with all applicable Environmental Laws in the future and renew or obtain
all Environmental Permits necessary for their operations in the future.
(c) Hazardous Materials have not been transported, disposed of,
emitted, discharged, or otherwise released or threatened to be released,
nor has their disposal been arranged for, (i) by the Borrower or any of
its Subsidiaries in violation of, or (ii) in a manner or to a location
which is reasonably likely to give rise to liability under, any
applicable Environmental Law; nor have any Hazardous Materials been
generated, treated, stored, emitted, discharged or otherwise released or
threatened to be released or disposed of at, on or under any of the
Properties in violation of, or in a manner that could reasonably be
expected to give rise to liability under, any applicable Environmental
Law.
(d) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower or any of its
Subsidiaries, threatened, under any Environmental Law to which the
Borrower or any Subsidiary is or to the knowledge of the Borrower or any
of its Subsidiaries will be named as a party, nor are there any consent
decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to the Borrower or any of its
Subsidiaries, or the Properties or the Business.
5.18 Accuracy of Information. The factual statements and information
contained in the Confidential Information Memorandum dated July 1996 relating to
Holdings and its Subsidiaries (as the same may be supplemented in writing
through the Closing Date, including by delivery of the Preliminary Prospectus
and the Final Prospectus, the "Information Memorandum"), when taken as a whole,
were, as of the date of such Information Memorandum or the dates otherwise
specified therein or written supplements thereto, accurate in all material
respects and did not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading
in light of the circumstances under which such statements were made, provided
that to the extent any such information therein was based upon or constitutes a
forecast or projection or pro forma financial information, Holdings and the
Borrower represent only that such forecasts or projections or pro forma
financial information were based upon good faith estimates and assumptions
believed by management of the Borrower to be reasonable at the time made.
5.19 Solvency. As of the Closing Date, after giving effect to the
transactions contemplated to occur on the Closing Date and the making of the
Term Loans and the initial Revolving Credit Loans (as if such Term Loans and
Revolving Credit Loans were made on the Closing Date), each Loan Party is
Solvent.
5.20 Labor Matters. There are no strikes pending or, to Holdings' or
the Borrower's knowledge, threatened against the Borrower or any of its
Subsidiaries which, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect. The hours worked and payments made to employees
of the Borrower and each of its Subsidiaries have not been in violation of the
Fair Labor
<PAGE>
47
Standards Act or any other applicable Requirement of Law, except to
the extent such violations are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect. The consummation of the IPO, the
Refinancing and the other transactions contemplated hereby will not give rise to
a right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which the Borrower or any of its
Subsidiaries (or any predecessor) is a party or by which the Borrower or any of
its Subsidiaries (or any predecessor) is bound.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Term Loans. The effectiveness of this Agreement and
the agreement of each Lender to make the Term Loan requested to be made by it is
subject to the satisfaction on the Closing Date, of the following conditions
precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of
Holdings and the Borrower with a counterpart for each Lender, (ii) for
the account of each Revolving Credit Lender which requests a Revolving
Credit Note on the Closing Date, a Revolving Credit Note conforming to
the requirements hereof and executed by a duly authorized officer of the
Borrower, (iii) for the account of each Term Loan Lender which requests a
Term Note on the Closing Date, a Term Note conforming to the requirements
hereof and executed by a duly authorized officer of the Borrower, (iv) if
requested by the Swing Line Lender on the Closing Date, for the account
of the Swing Line Lender, a Swing Line Note conforming to the
requirements hereof and executed by a duly authorized officer of the
Borrower and (v) the Subsidiaries Guarantee, executed and delivered by a
duly authorized officer of each Loan Party thereto, with a counterpart
for the Administrative Agent and a counterpart or a conformed copy for
each Lender.
(b) Consummation of the IPO. The Administrative Agent shall have
received evidence satisfactory to it that Holdings shall have consummated
the IPO and shall have received at least $100,000,000 in Net Proceeds
from the IPO and the Private Placement and that the Borrower shall have
received from the issuance of its common stock to, or by way of capital
contribution from, Holdings, an amount equal to the excess of such Net
Proceeds over the sum of (i) the amount required by Holdings to prepay
Indebtedness of Holdings pursuant to the Refinancing and (ii) the fees
and expenses of Holdings relating to the IPO, the Private Placement and
the Refinancing.
(c) Refinancing. The Administrative Agent shall have received
evidence reasonably satisfactory to it that Holdings and the Borrower and
its Subsidiaries shall have redeemed, repurchased or prepaid in full (the
"Refinancing") all of their outstanding Indebtedness (including, without
limitation, the Indebtedness described on Schedule 6.1(c)) other than
---------------
Indebtedness (not including the Zero Coupon Notes) not exceeding
$20,000,000 in aggregate principal amount outstanding as of the Closing
Date, provided that (i) if the covenants, conditions and other terms
applicable to the Zero Coupon Notes shall have been amended (such
amendment to be in the form of the Supplemental Indenture described in
the Zero Coupon Tender Offer) to the extent necessary to permit the
Extensions of Credit contemplated hereunder on the terms and conditions
hereof, it shall not be a condition to the effectiveness of this
Agreement or the agreement of each Lender to make the initial Extension
of Credit requested to be made by it that Holdings shall have redeemed,
repurchased or prepaid the
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48
Zero Coupon Notes and (ii) if the Term Loans have been requested to be
made on the Deferred Funding Date, such evidence may be in the form of
evidence reasonably satisfactory to the Administrative Agent that the
Refinancing shall be completed on the Deferred Funding Date. The
Administrative Agent shall also have received executed copies of all
payout or assignment letters, lien releases or assignments, termination
or assignment statements, satisfactions, agreements, certificates, and
other documents entered into in connection with any such termination, all
of which payout letters, lien releases or assignments, termination or
assignment statements, satisfactions, agreements, certificates and other
documents shall be in form and substance reasonably satisfactory to the
Administrative Agent.
(d) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, substantially in the form of Exhibit F,
---------
with appropriate insertions and attachments, satisfactory in form and
substance to the Administrative Agent, executed by the President or any
Vice President and the Secretary or any Assistant Secretary of the
Borrower.
(e) Corporate Proceedings of the Borrower. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party, (ii) the Extensions of Credit
contemplated hereunder and (iii) the transactions contemplated of it by
the IPO and the Refinancing, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Closing Date, which certificate shall
be in form and substance reasonably satisfactory to the Administrative
Agent and shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded.
(f) Borrower Incumbency Certificate. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, as to the incumbency and signature of
the officers of the Borrower executing any Loan Document which
certificate shall be reasonably satisfactory in form and substance to the
Administrative Agent and shall be executed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Borrower.
(g) Corporate Proceedings of Holdings. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance reasonably satisfactory to the
Administrative Agent, of the Board of Directors of Holdings authorizing
(i) the execution, delivery and performance of the Loan Documents to
which it is a party and (ii) the transactions contemplated of it by the
IPO and the Refinancing, certified by the Secretary or an Assistant
Secretary of Holdings as of the Closing Date, which certificate shall be
in form and substance reasonably satisfactory to the Administrative Agent
and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(h) Holdings Incumbency Certificate. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of
Holdings, dated the Closing Date, as to the incumbency and signature of
the officers of Holdings executing any Loan Document, which certificate
shall be reasonably satisfactory in form and substance to the
Administrative Agent
<PAGE>
49
and shall be executed by the President or any Vice President and the
Secretary or any Assistant Secretary of Holdings.
(i) Corporate Proceedings of Subsidiaries. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance reasonably satisfactory to the
Administrative Agent, of the Board of Directors of each Subsidiary of the
Borrower which is a Loan Party authorizing (i) the execution, delivery
and performance of the Loan Documents to which it is a party and (ii) the
transactions
contemplated of it by the IPO and the Refinancing, certified by the
Secretary or an Assistant Secretary of each such Subsidiary as of the
Closing Date, which certificate shall be in form and substance reasonably
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(j) Subsidiary Incumbency Certificates. The Administrative Agent
shall have received, with a counterpart for each Lender, a certificate of
each Subsidiary of the Borrower which is a Loan Party, dated the Closing
Date, as to the incumbency and signature of the officers of such
Subsidiaries executing any Loan Document, which certificate shall be
reasonably satisfactory in form and substance to the Administrative Agent
and shall be executed by the President or any Vice President and the
Secretary or any Assistant Secretary of each such Subsidiary.
(k) Corporate Documents. The Administrative Agent shall have
received, with a counterpart for each Lender, true and complete copies of
the certificate of incorporation and by-laws of each Loan Party,
certified as of the Closing Date as complete and correct copies thereof
by the Secretary or an Assistant Secretary of such Loan Party.
(l) Fees. The Administrative Agent and the Lenders shall have
received the fees required to be received by them on or prior to the
Closing Date.
(m) Legal Opinions. The Administrative Agent shall have received,
with a counterpart for each Lender, the executed legal opinion of Fried,
Frank, Harris, Shriver & Jacobson, special counsel to Holdings and the
Borrower, substantially in the form of Exhibit G.
---------
Such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(n) Interim Consolidated Financial Statements. The Lenders shall
have received, to the extent available, the unaudited consolidated
balance sheet of Holdings and its consolidated Subsidiaries as at June
30, 1996 and September 30, 1996 and the related unaudited consolidated
statements of income and of cash flows for the three-month periods ended
on such dates, certified by a Responsible Officer of Holdings to be
complete and correct and present fairly the consolidated financial
condition of Holdings and its consolidated Subsidiaries as at such date,
and the consolidated results of their operations and their consolidated
cash flows for the three-month periods then ended.
(o) Representations and Warranties. Each of the representations and
warranties made by the Borrower and the other Loan Parties in or pursuant
to the Loan Documents shall be true and correct in all material respects
on and as of the Closing Date, except to the extent such representations
and warranties expressly relate to an earlier date in which case such
<PAGE>
50
representations and warranties shall be true and correct in all material
respects as of such earlier date.
(p) No Default. No Default or Event of Default shall have occurred
and be continuing on the Closing Date.
6.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any Extension of Credit requested to be made by it on any date
(other than the Term Loans), and the
agreement of the Issuing Bank to issue any Letter of Credit for which an
Application is presented, is subject to the satisfaction of the following
conditions precedent:
(a) Closing Date. The Closing Date shall have occurred on or prior
to such date.
(b) Representations and Warranties. Each of the representations and
warranties made by the Borrower and the other Loan Parties in or pursuant
to the Loan Documents shall be true and correct in all material respects
on and as of such date as if made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier
date in which case such representations and warranties shall be true and
correct in all material respects as of such earlier date.
(c) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Extension of
Credit requested to be made on such date.
(d) Borrowing Requests and Applications. The Administrative Agent
shall have received a request or Application for such Loan or Letter of
Credit if and as required by subsection 3.2, 3.8, 3.11 or 3.14, as
applicable.
Each such Extension of Credit hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained in
clauses (a), (b) and (c) of this subsection have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect or any amount is owing to any Lender or
the Administrative Agent hereunder or under any other Loan Document or any
Letter of Credit remains outstanding, it shall and (except in the case of
delivery of financial information, reports and notices which shall be performed
by the Borrower) shall cause each of its Subsidiaries to, unless the Required
Lenders shall otherwise consent in writing:
7.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of Holdings or the Borrower, as the case may be,
a copy of the audited consolidated balance sheet of Holdings and its
consolidated Subsidiaries, or if the Merger is consummated, the Borrower
and its consolidated Subsidiaries, as at the end of such year and the
related audited consolidated statements of operations and of cash flows
for such year, setting forth in each
<PAGE>
51
case in comparative form the figures for the previous year, reported on
without a "going concern" or like qualification or exception, or a
qualification arising out of the scope of the audit, by Ernst & Young LLP
or other independent certified public accountants of nationally
recognized standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of Holdings or the Borrower, as the case may be, the unaudited
consolidated balance sheet of Holdings and its consolidated
Subsidiaries, or if the Merger is consummated, the Borrower and its
consolidated Subsidiaries, as at the end of such quarter and the related
unaudited consolidated statements of operations and of cash flows of
Holdings and its consolidated Subsidiaries, or if the Merger is
consummated, the Borrower and its consolidated Subsidiaries, for such
quarter and the portion of the fiscal year through the end of such
quarter, setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer of Holdings, as the
case may be, as being fairly stated in all material respects (subject to
normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein).
7.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a certificate of a Responsible
Officer of Holdings and the Borrower (i) stating that, to the best of
such Responsible Officer's knowledge, Holdings and the Borrower during
such period have observed or performed all of their respective covenants
and other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to be observed, performed or
satisfied by them during such period, and that such Officer has obtained
no knowledge of any Default or Event of Default except as specified in
such certificate and (ii) setting forth in reasonable detail the
calculations required to determine compliance with subsections 4.1(b),
8.1, 8.2(c), 8.6(e), 8.8, 8.9 and 8.10(f) and required to determine the
Leverage Ratio Level as of the date of delivery of such certificate;
(c) not later than forty-five days after the beginning of each fiscal
year of the Borrower, a copy of a business plan and the projections by
the Borrower of the operating budget and cash flow budget of the Borrower
and its Subsidiaries for such fiscal year, such projections for such
fiscal year to be accompanied by a certificate of a Responsible Officer
of the Borrower to the effect that such projections have been prepared
using assumptions believed in good faith by management of the Borrower to
be reasonable at the time made;
(d) within five Business Days after the same are sent, copies of all
financial statements and reports which Holdings sends to the holders of
any securities of the Loan Parties registered with the SEC, and within
ten Business Days after the same are filed, copies of all
<PAGE>
52
financial statements and reports which Holdings may make to, or file
with, the SEC or any analogous Governmental Authority;
(e) in the event the Borrower elects to exercise its right to retain
amounts received in respect of a Casualty Event to repair or replace any
property which is the subject of such Casualty Event, the Borrower shall
promptly deliver a certificate of a Responsible Officer to the
Administrative Agent setting forth the amount of the Net Proceeds of such
Casualty Event which the Borrower expects to use for such purpose; and
(f) promptly, such additional financial and other information
within the possession of Holdings or of the Borrower or any of its
Subsidiaries as any Lender may from time to time reasonably request
through the Administrative Agent.
7.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except (a) as contemplated by this
Agreement, (b) where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided on its books and (c) for other
delinquent obligations (including trade payables and liabilities) the failure to
pay which, individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect.
7.4 Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business except for rights, privileges
and franchises, the loss of which are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect and except as otherwise
permitted pursuant to subsection 8.5; comply in all material respects with all
Contractual Obligations and Requirements of Law (excluding, for purposes of this
subsection 7.4, Requirements of Law and Contractual Obligations specifically
addressed elsewhere in this Section 7) except to the extent the failure to
comply therewith, in the aggregate, is not reasonably likely to have a Material
Adverse Effect.
7.5 Maintenance of Property; Insurance. Keep all property material to
the conduct of its business in good working order and condition (ordinary wear
and tear excepted); maintain insurance with financially sound and reputable
insurance companies (or, to the extent consistent with prudent business
practice, a program of self-insurance) on such of its property and in at least
such amounts and against at least such risks as are usually insured against in
the same general area by companies engaged in the same or a similar business;
and furnish to each Lender, upon written request, full information as to the
insurance carried.
7.6 Inspection of Property; Books and Records; Discussions. Keep proper
financial records in conformity with GAAP and all applicable Requirements of
Law; and permit (a) representatives of the Administrative Agent (and, after the
occurrence and during the continuance of an Event of Default, any Lender) to
visit and inspect any of its properties and examine and make abstracts from any
of its books and records at any reasonable time, upon reasonable notice, and as
often as may reasonably be desired, and (b) upon reasonable notice during normal
business hours, representatives of the Administrative Agent or any Lender to
discuss the business, operations, properties and financial and other condition
of the Borrower and its Subsidiaries with officers and employees of the Borrower
and its Subsidiaries and with its independent certified public accountants.
<PAGE>
53
7.7 Notices. Promptly give notice to the Administrative Agent and each
Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings or of the Borrower or any of its Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any time
between Holdings, the Borrower or any of their respective Subsidiaries
and any Governmental Authority, which in either case, has a reasonable
possibility of an adverse determination or result, and if not cured, or
resolved or if adversely determined, as the case may be, is reasonably
likely to have a Material Adverse Effect;
(c) any litigation or proceeding affecting Holdings, the Borrower or
any of their respective Subsidiaries in which the amount involved is not
covered by insurance or in which injunctive or similar relief is sought
which has a reasonable possibility of an adverse determination and which,
if adversely determined, is reasonably likely to have a Material Adverse
Effect;
(d) the following events, as soon as practicable and in any event
within 30 days after Holdings knows or has reason to know thereof: (i)
the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the termination, Reorganization or Insolvency of, any
Plan, in each of cases (i) and (ii), where such event is reasonably
likely to have a Material Adverse Effect; and
(e) any development or event which is reasonably likely to have a
Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer of Holdings and the Borrower setting forth details of the
occurrence referred to therein and stating what action Holdings and the Borrower
propose to take with respect thereto.
7.8 Environmental Laws. Comply with, and use reasonable efforts to
ensure compliance by all tenants and subtenants, if any, with, all applicable
Environmental Laws (including, but not limited to, compliance with all
requirements as to investigations, studies, sampling and testing, and all
remedial, removal and other actions, under such Environmental Laws and
compliance with all lawful orders and directives of all Governmental Authorities
regarding such Environmental Laws) and obtain and comply with and maintain, and
use reasonable efforts to ensure that all tenants and subtenants obtain and
comply with and maintain, any and all Environmental Permits required by
applicable Environmental Laws, except, in each such case, to the extent the
failure to comply therewith, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect.
7.9 Additional Guarantors. The Borrower shall cause each new Material
Subsidiary (other than a Foreign Subsidiary) of the Borrower created or acquired
after the date hereof, promptly upon such creation or acquisition, to execute a
Supplement in form and substance reasonably satisfactory to the Administrative
Agent (it being acknowledged and agreed that an instrument in the form attached
to the Subsidiaries Guarantee as Exhibit A shall satisfy this requirement)
---------
pursuant to which such new Subsidiary shall become a party to the Subsidiaries'
Guarantee as a guarantor thereunder.
<PAGE>
54
7.10 Pledge of Stock. Within 10 days of the Closing Date, pledge 100%
of the capital stock of the Borrower and 100% of the capital stock owned
directly or indirectly by the Borrower in each Material Subsidiary which is not
a Foreign Subsidiary (within 45 days of the Closing Date in the case of each
Material Subsidiary which is a Foreign Subsidiary); provided that no more than
--------
65% of the outstanding capital stock of any Material Subsidiary which is a
first-tier Foreign Subsidiary need be pledged and that no Foreign Subsidiary
need make any such pledge, to secure the Obligations, pursuant to stock pledge
agreements (with accompanying resolutions, legal opinions, stock powers and
other appropriate documentation) in form and substance reasonably satisfactory
to the Administrative Agent, and (except for, in connection with the Merger,
the pledge of the capital stock of the Borrower) shall maintain the security
interest established by such pledges as validly perfected, first priority
security interests.
SECTION 8. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect or any amount is owing to any Lender or
the Administrative Agent hereunder or under any other Loan Document or any
Letter of Credit remains outstanding, neither Holdings nor the Borrower shall,
nor (except with respect to subsection 8.1) shall Holdings or the Borrower
permit any of their respective Subsidiaries to, directly or indirectly, unless
the Required Lenders shall otherwise agree in writing:
8.1 Financial Condition Covenants.
(a) Maintenance of Net Worth. Permit Consolidated Net Worth at the
end of any fiscal quarter, commencing with the fiscal quarter ending
December 31, 1996, to be less than (i) for any fiscal quarter ending
prior to December 31, 1997, $100,000,000 and (ii) for any fiscal quarter
ending on or after December 31, 1997, an amount equal to the sum of (A)
$100,000,000 and (B) 50% of aggregate Consolidated Net Income for the
fiscal quarter ending December 31, 1996 and for each full fiscal year
ending after December 31, 1996, in each case for which Consolidated Net
Income is positive.
(b) Maintenance of Current Ratio. Permit at the end of any fiscal
quarter, commencing with the fiscal quarter ending December 31, 1996, the
ratio of Consolidated Current Assets to Consolidated Current Liabilities
to be less than 1.50 to 1.00.
(c) Maintenance of Consolidated Adjusted Interest Coverage Ratio.
Permit for any period of four consecutive fiscal quarters ending during
any "Test Period" set forth below the Consolidated Adjusted Interest
Coverage Ratio for such period to be less than the ratio set forth
opposite such Test Period below:
Test Period Interest Coverage Ratio
----------- -----------------------
12/31/96 - 12/30/97 1.50 to 1.00
12/31/97 - 12/30/98 2.00 to 1.00
12/31/98 - 12/30/01 2.50 to 1.00
12/31/01 and thereafter 3.00 to 1.00
8.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
<PAGE>
55
(a) Indebtedness in respect of the Loans, any Notes, the Guarantees,
the Letters of Credit and the other obligations of the Loan Parties under
this Agreement and the other Loan Documents;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(c) Non-Recourse Indebtedness secured by Liens permitted pursuant to
subsection 8.3(i), provided that the aggregate outstanding amount of such
Non-Recourse Indebtedness shall not exceed an amount equal to 5% of
Consolidated Capitalization at any time;
(d) Indebtedness of Foreign Subsidiaries (other than Indebtedness
owed to the Borrower or any other Subsidiary) of up to $30,000,000 in
aggregate principal amount at any one time outstanding;
(e) Indebtedness outstanding on the date hereof and listed on
Schedule 8.2(e);
---------------
(f) Indebtedness in respect of performance bonds, indemnity bonds,
bid bonds, appeal bonds, bankers acceptances, letters of credit, surety
bonds or other similar obligations arising in the ordinary course of
business, provided that no such bond, bankers acceptance, letter of
credit or similar obligation is provided to secure or support the
repayment of other Indebtedness;
(g) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business, provided that such
Indebtedness is extinguished within five Business Days of notice to the
Borrower or any Subsidiary of its incurrence;
(h) Indebtedness arising out of an Investment permitted under
subsection 8.10(f) or an Asset Sale permitted under subsection 8.6(f)
consisting of (i) obligations with respect to customary post-closing
adjustments with respect to accounts receivable, accounts payable, net
worth and/or similar items typically subject to post-closing adjustments
in similar transactions, provided that such obligations are outstanding
for a period of two years or less following the creation thereof or (ii)
customary indemnities granted to the seller or buyer in connection with
such Investment or Asset Sale, as the case may be;
(i) Indebtedness of a Person which becomes a Subsidiary after the
date hereof, provided that (i) such Indebtedness existed at the time such
Person became a Subsidiary and was not created in anticipation of the
acquisition and (ii) immediately after giving effect to the acquisition
of such Person no Default or Event of Default shall have occurred and be
continuing; and
(j) Indebtedness of Holdings and any of its Subsidiaries in an
aggregate principal amount not exceeding $20,000,000 at any time
outstanding, including, without limitation, Indebtedness incurred to
finance the acquisition, construction or improvement of fixed or capital
assets (whether pursuant to a loan, a Financing Lease or otherwise).
<PAGE>
56
8.3 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of Holdings, the Borrower or
the relevant Subsidiary, as the case may be, in conformity with GAAP (or,
in the case of Foreign Subsidiaries, generally accepted accounting
principles in effect from time to time in their respective jurisdictions
of incorporation);
(b) statutory landlords' liens and carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business for sums which are not overdue for a period
of more than 60 days or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-
insurance arrangements;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions, and other similar
incumbrances incurred in the ordinary course of business, which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the use of the property subject thereto or
materially interfere with the ordinary conduct of the business of
Holdings or such Subsidiary;
(f) Liens securing Indebtedness of Holdings and its Subsidiaries
permitted by subsection 8.2(j) incurred to finance the acquisition,
construction or improvement of fixed or capital assets, provided that (i)
such Liens shall be created within 90 days after the acquisition,
construction or improvement of such fixed or capital assets, (ii) such
Liens do not at any time encumber any property other than the property
acquired, constructed or improved with the proceeds of such Indebtedness,
(iii) the amount of Indebtedness secured thereby shall not subsequently
be increased and (iv) the principal amount of Indebtedness secured by any
such Lien shall at no time exceed 100% of the original purchase price of
such asset or the amount expended to construct or improve such asset, as
the case may be;
(g) Liens in existence on the date hereof listed on Schedule 8.3(g),
---------------
provided that no such Lien is spread to cover any additional property
after the Closing Date and that the amount of Indebtedness secured
thereby shall not subsequently be increased;
(h) Liens on assets of any Foreign Subsidiary securing Indebtedness
of such Foreign Subsidiary permitted by subsection 8.2(d);
(i) Liens securing Non-Recourse Indebtedness of Holdings and its
Subsidiaries permitted by subsection 8.2(c);
(j) Liens on documents of title and property covered thereby securing
Indebtedness in respect of Commercial Letters of Credit;
<PAGE>
57
(k) all building codes and zoning ordinances and other laws,
ordinances, regulations, rules, orders or determinations of any federal,
state, county, municipal or other governmental authority now or hereafter
enacted; and
(l) Liens on the property or assets of a Person which becomes a
Subsidiary after the date hereof securing Indebtedness permitted by
subsection 8.2(h), provided that (i) such Liens existed at the time such
Person became a Subsidiary and were not created in anticipation of the
acquisition, (ii) any such Lien does not by its terms cover any property
or assets after the time such Person becomes a Subsidiary which were not
covered immediately prior thereto and (iii) any such Lien does not by its
terms secure any Indebtedness other than Indebtedness existing
immediately prior to the time such Person becomes a Subsidiary.
8.4 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and listed
on Schedule 8.4(a);
---------------
(b) the Guarantees and Letters of Credit;
(c) guarantees made in the ordinary course of its business by
Holdings or the Borrower of obligations of any Subsidiary, which
obligations are otherwise permitted under this Agreement; and
(d) guarantees in respect of obligations to third parties issued in
the ordinary course of business in connection with relocation of
employees of the Borrower or any of its Subsidiaries.
(e) guarantees by Holdings and its Subsidiaries incurred in the
ordinary course of business for an aggregate amount not to exceed
$5,000,000 at any one time outstanding, provided that such amount shall
reduce, on a dollar for dollar basis, either the aggregate amount of
Indebtedness permitted for Foreign Subsidiaries under subsection 8.2(d)
or the aggregate amount of Indebtedness permitted under subsection
8.2(j).
8.5 Limitation on Fundamental Changes. Enter into any merger (other
than in connection with the Reclassification), consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all of its property, business or assets, or make any
material change in its present method of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that (i) the Borrower shall be the
continuing or surviving corporation and (ii) if the Merger has occurred,
such merger or consolidation does not adversely affect the value of the
pledge of the stock of the Subsidiaries of the Borrower pursuant to
subsection 7.10) or with or into any one or more wholly owned
Subsidiaries of the Borrower (provided that (i) the wholly owned
Subsidiary or Subsidiaries shall be the continuing or surviving
corporation and (ii) the surviving corporation shall be a Subsidiary
Guarantor if either party to such merger or consolidation is a Subsidiary
Guarantor);
<PAGE>
58
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation
or otherwise) to the Borrower (provided that, if the Merger has occurred,
such sale, lease, transfer or other disposition does not adversely affect
the value of the pledge of the stock of the Subsidiaries of the Borrower
pursuant to subsection 7.10) or any other wholly owned Subsidiary of the
Borrower and which is a Subsidiary Guarantor if the Transferor is a
Subsidiary Guarantor;
(c) pursuant to any transaction expressly permitted by subsection 8.6
or 8.10; and
(d) the Merger, provided that if Holdings is the surviving
corporation of the Merger, (i) Holdings shall thereafter be the
"Borrower" for all purposes of this Agreement, (ii) the provisions of
Sections 9 and 10 shall cease to apply to Holdings and (iii) Holdings
shall be deemed to and hereby shall assume all of the Borrower's
obligations under the Loan Documents (without limiting the foregoing,
Holdings shall execute such documents and take such other actions as the
Administrative Agent may reasonably request in connection with the Merger
and the assumption of the obligations of the "Borrower" under this
Agreement and the other Loan Documents) and provided, further, that there
has not been a merger, consolidation, sale, lease, transfer or other
disposition pursuant to paragraph (a) or (b) of this subsection 8.5 that,
after giving effect to the Merger, adversely affects the value of the
pledge of the stock of the Subsidiaries of the Borrower pursuant to
subsection 7.10.
8.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests and any
sale, transfer or other disposition in connection with a Sale/Leaseback
Transaction), whether now owned or hereafter acquired, or, in the case of any
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person other than Holdings or any wholly owned Subsidiary, except:
(a) the conveyance, sale, lease, assignment, transfer or other
disposition of Obsolete Property in the ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) the sale or discount for fair value without recourse of accounts
receivable arising in the ordinary course of business in connection with
the compromise or collection thereof;
(d) as permitted by subsection 8.5(a) or 8.5(b);
(e) the sale of excess talc reserves for aggregate net proceeds of up
to $10,000,000;
(f) the sale or disposition of any asset or assets (other than as
permitted in clauses (a) through (e) of this subsection 8.6) in the
ordinary course of business, provided that the net proceeds from any such
transaction do not exceed $250,000; and
(g) Asset Sales (other than Asset Sales of inventory and other than
any other Asset Sale permitted under this subsection 8.6) in the ordinary
course of business, provided that (i) the Net Proceeds of any such Asset
Sale are applied to prepay Loans (and/or cash collateralize Letter of
Credit) and the Revolving Credit Commitments are reduced, in each case to
the extent required by subsection 4.1(b), (ii) the aggregate amount of
Net Proceeds of Asset Sales
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59
subsequent to the Closing Date shall not exceed $70,000,000 and (iii) the
Net Proceeds from any such Asset Sale (or series of related Asset Sales)
shall not exceed $35,000,000.
To the extent that any sale permitted under this subsection 8.6 is of the
capital stock of any Subsidiary, such capital stock shall be released from the
security interest therein created pursuant to subsection 7.10 and such
Subsidiary, if it is a Subsidiary Guarantor, shall be released from its
obligations under the Subsidiaries Guarantee.
8.7 Limitation on Leases. Permit Consolidated Lease Expense for any
fiscal year of the Borrower to exceed (a) for any such fiscal year prior to
1999, $32,000,000 and (b) for the 1999 fiscal year of the Borrower and any such
fiscal year thereafter, $35,000,000.
8.8 Limitation on Restricted Payments. Declare or pay any dividend
(other than dividends payable solely in common stock of the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or any
warrants or options to purchase any such Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
any Subsidiary (such declarations, payments, setting apart, purchases,
redemptions, defeasances, retirements, acquisitions and distributions being
herein called "Restricted Payments"), except that,
(a) the Borrower may pay cash dividends to Holdings to pay any taxes
or expenses required to be paid by Holdings in the ordinary course of
business and to maintain a cash balance of $250,000 for the payment of
such taxes and expenses, provided that any such taxes or expenses are
paid no later than fifteen Business Days after the date on which the
relevant dividend is made;
(b) the Borrower may pay cash dividends to Holdings to the extent
necessary to enable Holdings to pay fees, expenses and other obligations
incurred or required in connection with the IPO, the Private Placement
and the Refinancing, provided that Holdings shall pay each obligation in
respect of which such dividend is made no later than fifteen Business
Days after the date on which the relevant dividend is made;
(c) the Borrower may pay dividends to Holdings to redeem, repay and
repurchase the Zero Coupon Notes in connection with the Zero Coupon
Tender Offer and to pay any reasonable fees and expenses associated
therewith;
(d) the Borrower may pay dividends to Holdings to enable Holdings to
make investments and satisfy obligations permitted to be made and
incurred under Section 9;
(e) so long as no Default or Event of Default has occurred or would
occur after giving effect to such declaration or payment, the Borrower
may, from time to time, declare and pay cash dividends to Holdings on the
common stock of the Borrower in an aggregate amount not to exceed
$5,000,000 in any fiscal year of the Borrower or $10,000,000 in the
aggregate; provided, that the proceeds of such dividends shall be used
within 30 days of the receipt of such dividends by Holdings to repurchase
Holdings stock or stock options from, or to cash out other management
equity interests held by, management employees of Holdings or any of its
Subsidiaries, and provided, further, that such $10,000,000 amount shall
be increased by the proceeds of any additional Holdings capital stock
which is issued to any management
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60
employees of Holdings or any of its Subsidiaries so long as such proceeds
are contributed by Holdings to the capital of the Borrower; and
(f) so long as no Default or Event of Default has occurred or would
occur after giving effect to such declaration or payment, the Borrower
may, at any date, declare and pay cash dividends on its common stock in
order to enable Holdings to declare and pay equivalent cash dividends to
its shareholders if (i) the aggregate principal amount of the Term Loans
outstanding at such date is less than $125,000,000 and (ii) the
Consolidated Leverage Ratio on such date is less than 2.5 to 1, provided
that the aggregate amount of such cash dividends in any fiscal year of
the Borrower shall not exceed 25% of the Consolidated Net Income for the
immediately preceding fiscal year.
8.9 Limitation on Capital Expenditures. Make or commit to make Capital
Expenditures in the aggregate for the Borrower and its Subsidiaries during any
of the fiscal years of the Borrower set forth below, in excess of the amount set
forth opposite such fiscal year below:
Fiscal Year Ending Amount
------------------ ------
12/31/96 $65,000,000
12/31/97 65,000,000
12/31/98 75,000,000
12/31/99 75,000,000
12/31/00 80,000,000
12/31/01 85,000,000
12/31/02 90,000,000
provided, that, if the Consolidated Adjusted Interest Coverage Ratio for any
period of four consecutive fiscal quarters exceeds 5.00 to 1.00, this covenant
shall cease to be of any further force and effect.
8.10 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or any assets constituting a
business unit of, or make any other investment in, any Person (an "Investment"),
except:
(a) extensions of trade credit (including to Foreign Subsidiaries)
and endorsements of negotiable instruments and other negotiable documents
in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) payroll advances in the ordinary course of business and loans and
advances to employees and directors of Holdings, the Borrower or any of
its Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for Holdings, the
Borrower and its Subsidiaries not to exceed $500,000 at any time
outstanding;
(d) Investments in Subsidiaries and in RISA and Investments by such
Subsidiaries in the Borrower and in other Subsidiaries, provided that the
aggregate amount of all such Investments (including Investments in the
nature of sales and transfers of assets (including, pursuant to a
transaction permitted under subsection 8.5(b)) for less than fair market
value)
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61
after the Closing Date (i) in the Mexican Subsidiaries and RISA shall not
exceed at any one time outstanding the sum of (A) $15,000,000 and (B) the
aggregate Capital Expenditures made by them and funded by Investments by
the Borrower or Holdings, (ii) in Foreign Subsidiaries (including the
Mexican Subsidiaries and RISA) shall not exceed at any one time
outstanding the sum of (A) $25,000,000 and (B) the amount referred to in
clause (i)(B) above and (iii) in Subsidiaries (other than Foreign
Subsidiaries and RISA) which are not Subsidiary Guarantors shall not
exceed at any one time outstanding $15,000,000;
(e) advances by the Borrower to Holdings, in lieu of the payment of
cash dividends, to enable Holdings to make the payments contemplated by
subsection 8.8, provided that, if such advances are made with respect to
the payments contemplated by subsection 8.8(a) or 8.8(b), such advances
are used to make such payments within fifteen Business Days after such
advances are made;
(f) Investments in Joint Ventures, Persons and business units engaged
in Related Businesses not to exceed an amount equal to 5% of Consolidated
Capitalization (net of any amounts realized by the Borrower and its
Subsidiaries in respect of such Investments) at any time outstanding.
8.11 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or such Subsidiary's business and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate, provided, that the
foregoing restriction shall not prohibit (i) payment of reasonable fees to
directors of Holdings, the Borrower and its Subsidiaries, (ii) any payment or
other transaction pursuant to any tax sharing agreement, (iii) payments
permitted under subsection 8.8 or subsection 8.10, (iv) the Indebtedness
permitted pursuant to subsection 8.2(b), (v) any employment agreement entered
into by the Borrower or any of its Subsidiaries in the ordinary course of
business and (vi) any issuance of securities in connection with employment
arrangements, stock options and stock ownership plans of the Borrower entered
into in the ordinary course of business.
8.12 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary (a "Sale/Leaseback
Transaction"), other than Sale/Leaseback Transactions the Asset Sales with
respect to which are permitted under subsection 8.6(g).
8.13 Limitation on Changes in Fiscal Year. Change the fiscal year of
Holdings.
8.14 Limitation on Certain Clauses. Enter into with any Person any
agreement, other than (a) this Agreement, (b) any industrial revenue or
development financings, purchase money mortgages or Financing Leases permitted
by this Agreement (in which cases, any prohibition or limitation shall only be
effective against the assets financed thereby or securing any such financing,
mortgage or Lease) or other Liens permitted by subsection 8.3 (in which case any
prohibition or limitations may only be effective against the assets subject to
such Liens), or (c) any other Contractual Obligation (provided that any
prohibition of the type limited by this subsection contained in any such
Contractual Obligation may be
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62
effective only against the rights of the Borrower or its Subsidiary in the
contract or agreement relating to such Contractual Obligation and the assets
subject thereto) which prohibits or limits the ability of the Borrower or any of
its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, whether now owned or hereafter acquired or
which prohibits or limits loans or dividends by Subsidiaries to the Borrower.
8.15 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement
(including the manufacture and distribution of ceramic tile and related products
and the distribution of home furnishing, construction and renovation products
connected to ceramic tile and related products) or which are reasonably related
thereto.
SECTION 9. NEGATIVE COVENANTS OF HOLDINGS
Holdings agrees that, so long as the Commitments remain in effect or any
amount is owing to any Lender or the Administrative Agent hereunder or under any
other Loan Document or any Letter of Credit remains outstanding, Holdings shall
not, unless the Required Lenders shall otherwise agree in writing:
9.1 Limitation on Holdings' Activities. Create, incur, assume or suffer
to exist any Indebtedness, Lien or Guarantee Obligation (other than in respect
of the Zero Coupon Notes), or make any Investments, loans or advances to any
Person, or purchase any material assets, or conduct, transact or otherwise
engage, or commit to transact, conduct or otherwise engage, in any business or
operations other than (i) transactions contemplated in connection with the
consummation of the Reclassification and the Merger, (ii) the ownership of the
Capital Stock of the Borrower, and the exercise of rights and performance of
obligations in connection therewith, (iii) the entry into, and exercise of
rights and performance of obligations in respect of, (A) this Agreement, (B)
contracts and agreements with or for the benefit of officers, directors and
employees of Holdings or any Subsidiary thereof relating to their employment or
directorships, (C) insurance policies and related contracts and agreements and
(D) equity subscription agreements, registration rights agreements, warrant
agreements, voting and other stockholder agreements, engagement letters,
underwriting agreements and other agreements in respect of its equity securities
or any offering, issuance or sale thereof, (iv) transactions which would be
permitted for the Borrower pursuant to subsections 8.2, 8.3, 8.4, 8.6 and 8.10,
provided that (A) the qualitative and quantitative limitations described in
those subsections shall apply to Holdings, and (B) each such transaction shall
reduce the amount permitted for the Borrower under each such subsection, (v) the
offering, issuance and sale of its equity securities to the extent such
offering, issuance or sale does not constitute a Default or Event of Default
under Section 11(j), (vi) the filing of registration statements, and compliance
with applicable reporting and other obligations, under and compliance with its
federal, state or other securities laws, (vii) the performance of obligations
under and compliance with its certificate of incorporation and by-laws, or any
applicable law, ordinance, regulation, rule, order, judgment, decree or permit,
including, without limitation, as a result of or in connection with the
activities of its Subsidiaries, (viii) the performance of contractual
obligations in existence on the date hereof or otherwise permitted hereunder,
(ix) the incurrence and payment of its business expenses and any taxes for which
it may be liable and (x) other activities necessarily incidental to the
foregoing.
9.2 Restricted Payments. Use any amount received by it pursuant to
subsection 8.8 from the Borrower or any of its Subsidiaries for any purpose
other than as set forth in such subsection.
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9.3 Equity Net Proceeds. Fail to contribute the Net Proceeds of any
issuance of Common Stock by Holdings subsequent to the Closing Date to the
Borrower (or to a Person if Holdings' investment therein is permitted under
subsection 9.1) within five Business Days of the receipt of such Net Proceeds.
9.4 Dividends. Declare or pay any dividend (other than dividends
payable solely in Common Stock or other Capital Stock of Holdings) on, or make
any payment on account of, or set apart assets for a sinking or other analogous
fund for the purchase, redemption, defeasance, retirement or other acquisition
of Capital Stock of Holdings, or any warrants or options to purchase any such
Stock, whether now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property or
in obligations of Holdings or any of its Subsidiaries, except as contemplated by
clauses (e) and (f) of subsection 8.8.
SECTION 10. GUARANTEE
10.1 Guarantee. (a) To induce the Administrative Agent and the Lenders
to execute and deliver this Agreement and to make the Extensions of Credit
provided for herein to the Borrower, Holdings hereby unconditionally and
irrevocably guarantees to the Administrative Agent and the Lenders and their
respective successors, permitted transferees and permitted assigns, the prompt
and complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations. Holdings
further agrees to pay any and all reasonable expenses (including, without
limitation, all reasonable fees and disbursements of counsel) which may be paid
or incurred by the Administrative Agent or any Lender in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any
or all of the Obligations and/or enforcing any rights with respect to, or
collecting against, Holdings under this Section 10. This Guarantee shall remain
in full force and effect until the Obligations are paid in full, the Commitments
are terminated and no Letter of Credit is outstanding or not fully
collateralized on terms satisfactory to the Administrative Agent,
notwithstanding that from time to time prior thereto the Borrower may be free
from any Obligations.
(b) No payment or payments made by the Borrower or any other Person or
received or collected by the Administrative Agent or any Lender from the
Borrower or any other Person by virtue of any action or proceeding or any set-
off or appropriation or application, at any time or from time to time, in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of Holdings under this Section 10
which shall, notwithstanding any such payment or payments, remain in full force
and effect until the Obligations are paid in full, the Commitments are
terminated and no Letter of Credit is outstanding or not fully collateralized on
terms satisfactory to the Administrative Agent. Holdings agrees that whenever,
at any time, or from time to time, it shall make any payment to the
Administrative Agent or any Lender on account of its liability under this
Section 10, it will notify the Administrative Agent and such Lender in writing
that such payment is made under this Section 10 for such purpose.
10.2 No Subrogation, Contribution, Reimbursement or Indemnity.
Notwithstanding anything to the contrary in this Section 10, Holdings shall not
be entitled to be subrogated to any of the rights of the Administrative Agent or
any Lender against the Borrower or any other Guarantor or any collateral
security or guarantee or right of offset held by any Lender for the payment of
the Obligations, nor shall Holdings seek or be entitled to seek any contribution
or reimbursement from the Borrower or any other Guarantor in respect of payments
made by Holdings hereunder, until all amounts owing to the Administrative Agent
and the Lenders by the Borrower on account of the Obligations are paid in full,
the Commitments are terminated and no Letter of Credit remains outstanding or
not fully collateralized on terms satisfactory to the Administrative Agent. If
any amount shall be paid to Holdings on account of
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such subrogation rights at any time when all of the Obligations shall not have
been paid in full, the Commitments shall not have been terminated or a Letter of
Credit remains outstanding, such amount shall be held by Holdings in trust for
the Administrative Agent and the Lenders, segregated from other funds of
Holdings, and shall, forthwith upon receipt by Holdings, be turned over to the
Administrative Agent in the exact form received by Holdings (duly indorsed by
Holdings to the Administrative Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may determine. The provisions of this subsection shall survive the
termination of the guarantee contained in this Section 10 and the payment in
full of the Obligations, the termination of the Commitments and the
cancellation, revocation or termination of all outstanding Letters of Credit.
10.3 Amendments, etc. with respect to the Obligations; Waiver of Rights.
Holdings shall remain obligated hereunder notwithstanding that, without any
reservation of rights against Holdings, and without notice to or further assent
by Holdings, any demand for payment of any of the Obligations made by the
Administrative Agent or any Lender may be rescinded by the Administrative Agent
or such Lender, and any of the Obligations continued, and the Obligations, or
the liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and this Agreement, the other Loan Documents, any Hedge
Agreement entered into by the Borrower with any Lender or any Affiliate of any
Lender and any other documents executed and delivered in connection herewith or
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Administrative Agent (or the Required Lenders, as the case may be)
or such Lender or Affiliate may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender or its Affiliates shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for the guarantee contained in this Section 10 or any property
subject thereto. When making any demand hereunder against Holdings, the
Administrative Agent or any Lender may, but shall be under no obligation to,
make a similar demand on the Borrower or any other guarantor, and any failure by
the Administrative Agent or any Lender to make any such demand or to collect any
payments from the Borrower or any such other guarantor or any release of the
Borrower or such other guarantor shall not relieve Holdings of its obligations
or liabilities under this Section 10, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative
Agent or any Lender against Holdings. For the purposes hereof "demand" shall
include the commencement and continuance of any legal proceedings.
10.4 Guarantee Absolute and Unconditional. Holdings waives, to the
fullest extent permitted by applicable law, any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of reliance by the Administrative Agent or any Lender upon the guarantee
contained in this Section 10 or acceptance of the guarantee contained in this
Section 10; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon the guarantee contained in this Section 10; and all
dealings between the Borrower or Holdings, on the one hand, and the
Administrative Agent and the Lenders, on the other hand, shall likewise be
conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 10. Holdings waives, to the fullest extent
permitted by applicable law, diligence, presentment, protest, demand for payment
and notice of default or nonpayment to or upon the Borrower or Holdings with
respect to the Obligations. This Guarantee shall be construed as a continuing,
absolute and unconditional guarantee of payment without regard to (a) the
validity, regularity or enforceability of this Agreement, any Note, any other
Loan Document, any Hedge Agreement entered into by the Borrower with any Lender
or any Affiliate of any Lender, any of the
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Obligations or any guarantee or right of offset with respect thereto at any time
or from time to time held by the Administrative Agent or any Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower against the Administrative Agent or any Lender or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Borrower
or Holdings) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrower for the Obligations, or of Holdings
under the guarantee contained in this Section 10, in bankruptcy or in any other
instance. When pursuing its rights and remedies hereunder against Holdings, the
Administrative Agent and any Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrower or any other
Person or against any guarantee for the Obligations or any right of offset with
respect thereto, and any failure by the Administrative Agent or any Lender to
pursue such other rights or remedies or to collect any payments from the
Borrower or any such other Person or to realize upon any such guarantee or to
exercise any such right of offset, or any release of the Borrower or any such
other Person or of any such guarantee or right of offset, shall not relieve
Holdings of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent or any Lender against Holdings. The guarantee contained in
this Section 10 shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon Holdings and its successors,
and shall inure to the benefit of the Administrative Agent and the Lenders, and
their respective successors, permitted transferees and permitted assigns, until
all the Obligations and the obligations of Holdings under this Guarantee shall
have been satisfied by payment in full, the Commitments shall be terminated and
no Letter of Credit shall remain outstanding, notwithstanding that from time to
time during the term of this Agreement the Borrower may be free from any
Obligations.
10.5 Reinstatement. The guarantee contained in this Section 10 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be restored or returned by the Administrative Agent or any Lender upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Borrower or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
10.6 Payments. Holdings hereby agrees that the Obligations will be paid
to the Administrative Agent without set-off or counterclaim in Dollars at the
office of the Administrative Agent located at 270 Park Avenue, New York, New
York 10017.
SECTION 11. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on any Loan, or any
other amount payable hereunder, within three Business Days after any such
interest or other amount becomes due in accordance with the terms thereof
or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this
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66
Agreement or any such other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed made;
or
(c) The Borrower or any other Loan Party shall default in the observance
or performance of any agreement contained in subsection 7.10, Section 8 or
Section 9; or
(d) The Borrower or any other Loan Party shall default in the observance
or performance of any other agreement contained in this Agreement or any
other Loan Document (other than as provided in paragraphs (a) through (c)
of this Section), and such default shall continue unremedied for a period
of 30 days after the earlier of (i) the date on which a Responsible Officer
of Holdings becomes aware of such default or (ii) the date on which written
notice thereof shall have been given to the Borrower by the Administrative
Agent or any Lender; or
(e) Holdings, the Borrower or any its Subsidiaries shall (i) default in
any payment of principal of or interest on any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, beyond the period of
grace (not to exceed 60 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created, as the case may be, if the aggregate amount of the Indebtedness
and/or Guarantee Obligations in respect of which such default or defaults
shall have occurred is at least $5,000,000; or (ii) default in the
observance or performance of any other agreement or condition to be
observed or performed by such Person relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or the full amount of such
Guarantee Obligation to become payable, provided, however, that, a default,
event or condition described in this Section 11(e)(ii) shall not constitute
an Event of Default under this Section 11(e) unless, at the time of such
default, event or condition, defaults, events or conditions of the type
described in this Section 11(e)(ii) shall have occurred and are continuing
with respect to Indebtedness and Guarantee Obligations the aggregate amount
of which exceeds $5,000,000; or
(f) (i) The Borrower or any of its Significant Subsidiaries or Holdings
shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Borrower or
any of its Significant Subsidiaries or Holdings shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Significant Subsidiaries or
Holdings any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against the Borrower or any of its Significant Subsidiaries or
Holdings any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) the
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Borrower or any of its Significant Subsidiaries or Holdings shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above; or (v) the Borrower or any of its Significant Subsidiaries or
Holdings shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan, or (vi) any other similar event or condition shall occur or exist
with respect to a Plan that could result in a liability (other than in the
ordinary course), and in each case in clauses (i) through (vi) above, such
event or condition, together with all other such events or conditions, if
any, is reasonably likely to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $5,000,000 or more, and all
such judgments or decrees shall not have been vacated, discharged, stayed
or bonded pending appeal within 60 days from the entry thereof; or
(i) Any Guarantee shall cease, for any reason, to be in full force and
effect or any Guarantor shall so assert; or
(j) (i) if the AEA Group shall cease at any time to be the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of more than 50% of the aggregate votes
represented by the outstanding Voting Stock of Holdings (or, if the Merger
is consummated, the Borrower), (A) any person or group (within the meaning
of Rule 13d-5 under the Exchange Act, and Sections 13(d) and 14(d) of the
Exchange Act) other than the AEA Group or Armstrong shall become, directly
or indirectly, in a single transaction or in a related series of
transactions by way of merger, consolidation or other business combination
or otherwise, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 25% of the aggregate votes represented by the
outstanding Voting Stock of Holdings (or, if the Merger is consummated, the
Borrower) or (B) Armstrong shall become, directly or indirectly, in a
single transaction or in a related series of transactions by way of merger,
consolidation or other business combination or otherwise, the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 49%
of the aggregate votes represented by the outstanding Voting Stock of
Holdings (or, if the Merger is consummated, the Borrower), (ii) at any time
prior to the Merger, Holdings shall cease to own all of the outstanding
Capital Stock of the Borrower, or (iii) any person or group (within the
meaning of Rule 13d-5 under the Exchange Act, and Sections 13(d) and 14(d)
of the Exchange Act) other than the AEA Group shall at any time have the
right to designate or elect a majority of the board of directors of the
Borrower or Holdings.;
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68
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i), (ii) or (iii) of paragraph (f) of this Section with respect to
the Borrower, automatically the Commitments (including the Swing Line
Commitment) shall immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) shall immediately become due and payable, and (B)
if such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Commitments
(including the Swing Line Commitment) to be terminated forthwith, whereupon the
Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts (including, without limitation, all amounts of L/C Obligations, whether
or not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) owing under this Agreement to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
With respect to all Letters of Credit with respect to which presentment
for honor shall not have occurred at the time of an acceleration pursuant to the
preceding paragraph, the Borrower shall at such time deposit in a cash
collateral account opened by the Administrative Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Bank and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other Obligations. After all such Letters of Credit shall have expired or
been fully drawn upon, all Reimbursement Obligations shall have been satisfied
and all other Obligations shall have been paid in full, the balance, if any, in
such cash collateral account shall be returned to the Borrower. The Borrower
shall execute and deliver to the Administrative Agent, for the account of the
Issuing Bank and the L/C Participants, such further documents and instruments as
the Administrative Agent may request to evidence the creation and perfection of
the security interest in such cash collateral account.
SECTION 12. THE ADMINISTRATIVE AGENT
12.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
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69
12.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
12.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower or any
officer thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
12.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or such other
Lenders as shall be required by this Agreement) as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
and the other Loan Documents in accordance with a request of the Required
Lenders (or such other Lenders as shall be required by this Agreement), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Loans.
12.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower or Holdings referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or such other Lenders as shall be
required by this Agreement; provided that unless and until the Administrative
Agent shall have received such directions, the Administrative Agent may (but
shall not be obligated to) take such action, or refrain
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70
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders.
12.6 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Borrower, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
12.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Loans shall have been paid
in full, ratably in accordance with their Commitment Percentages immediately
prior to such date), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Administrative Agent in any way relating to
or arising out of, the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. The agreements in this subsection shall
survive the payment of the Loans and all other amounts payable hereunder.
12.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it and with respect to
any Letter of Credit issued or participated in by it, the Administrative Agent
shall have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
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71
12.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be subject to the approval of the Borrower (which approval
shall not be unreasonably withheld), or shall appoint as a successor agent a
financial institution which is not a Lender and which is reasonably acceptable
to the Borrower, whereupon such successor agent shall succeed to the rights,
powers and duties of the Administrative Agent, and the term "Administrative
Agent" shall mean such successor agent effective upon such appointment and
approval, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Loans. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this Section 12
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and the other Loan
Documents.
12.10 Issuing Bank; Swing Line Lender. The provisions of this Section
12 (other than subsection 12.9) shall apply to the Issuing Bank and the Swing
Line Lender mutatis mutandis to the same extent as such provisions apply to the
Administrative Agent.
12.11 Annual Administration Fee. The Borrower shall pay to the
Administrative Agent an annual administration fee (the "Annual Administration
Fee") on the Closing Date and annually in advance on each anniversary thereof
prior to the Revolving Credit Termination Date (or such earlier date on which
the Revolving Credit Commitments shall terminate pursuant to Section 11) and the
payment in full of all Obligations. The Annual Administration Fee payable on
the Closing Date shall be in an amount equal to $250,000 and the Annual
Administration Fee payable on each anniversary of the Closing Date in accordance
with the immediately preceding sentence shall be in an amount equal to $200,000.
SECTION 13. MISCELLANEOUS
13.1 Amendments and Waivers. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
and each Loan Party which is a party to the relevant Loan Documents written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Borrower
hereunder or thereunder or (b) waive, on such terms and conditions as the
Required Lenders or the Administrative Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification
shall (i) reduce the amount or extend the scheduled date of maturity of any Loan
made by any Lender or of any installment thereof, or reduce the stated rate of
any interest thereon or reduce the fee payable hereunder to any Lender or extend
the scheduled date of any payment thereof or increase the aggregate amount or
extend the expiration date of any Lender's Commitments, in each case without the
consent of each such Lender directly affected thereby, (ii) amend, modify or
waive any provision of this subsection or reduce the percentage specified in the
definition of Required Lenders or consent to the assignment or transfer by the
Borrower or Holdings of any of its rights and obligations under this Agreement
and the other Loan Documents or release all or substantially all of the
Guarantees or release all or substantially all of the
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72
capital stock pledged pursuant to the stock pledge agreements executed pursuant
to subsection 7.10, in each case without the written consent of all the Lenders
(except that in connection with the Merger, the release of the capital stock of
the Borrower shall not require the consent of the Lenders and except as provided
in subsection 8.6), (iii) amend, modify or waive subsection 4.1(c) without the
written consent of the Required Term Loan Lenders or reduce the percentage in
the definition of Required Term Loan Lenders without the consent of all the Term
Loan Lenders, (iv) amend, modify or waive any provision of Section 3 without the
prior written consent of the Required Revolving Credit Lenders and the Issuing
Bank or reduce the percentage in the definition of Required Revolving Credit
Lenders or amend, modify or waive the penultimate sentence of subsection 4.7(c)
without the consent of all the Revolving Credit Lenders and the Issuing Bank or
(v) amend, modify or waive any provision of Section 12 without the written
consent of the then Administrative Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Borrower, the Lenders, the Administrative Agent
and all future holders of the Loans. In the case of any waiver, the Borrower,
the Lenders and the Administrative Agent shall be restored to their former
positions and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereon.
13.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered, or three days after
being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule 1.1(a) in the case of the
---------------
other parties hereto, or to such other address as may be hereafter notified by
the respective parties hereto:
Holdings: Dal-Tile International Inc.
7834 C.F. Hawn Freeway
P.O. Box 17130
Dallas, Texas 75217
Attention: Mr. Carlos Sala
Telecopy: (214) 309-4390
The Borrower: Dal-Tile Group Inc.
7834 C.F. Hawn Freeway
P.O. Box 17130
Dallas, Texas 75217
Attention: Mr. Carlos Sala
Telecopy: (214) 309-4390
with a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Mr. F. William Reindel
Telecopy: (212) 859-8587
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73
The Administrative
Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: William Caggiano
Telecopy: (212) 972-0009
with a copy to: The Chase Manhattan Bank
Agent Bank Services
140 East 45th Street, 29th Floor
New York, New York 10017
Attention: Janet Belden
Telecopy: (212) 622-0122
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 3.2, 3.4, 3.7 or 3.11 shall not be
effective until received.
13.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
13.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents prepared in connection herewith or therewith, including, without
limitation, the fees and disbursements of counsel (including the allocated fees
and expenses of in-house counsel in lieu of the fees and expenses of outside
counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay,
indemnify, and hold each Lender and the Administrative Agent harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, indemnify, and hold each Lender and
the Administrative Agent and their Affiliates and their respective officers,
directors, employees, advisors and agents harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any
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74
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents, the
IPO, the Refinancing, the Merger or the use of the proceeds of the Loans, and
any other documents, including, without limitation, any of the foregoing
relating to the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower, any of its
Subsidiaries or any of the Properties (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), provided, that the Borrower shall
have no obligation hereunder to the Administrative Agent or any Lender with
respect to indemnified liabilities arising from (i) the gross negligence or
willful misconduct of the Administrative Agent or any such Lender, as the case
may be, or (ii) legal proceedings commenced against the Administrative Agent or
any such Lender, as the case may be, by any security holder or creditor thereof
arising out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such. The agreements in this subsection shall
survive repayment of the Loans and all other amounts payable hereunder.
13.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower,
Holdings, the Lenders, the Administrative Agent and their respective successors
and assigns, except that neither the Borrower nor Holdings may assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender and any assignment or transfer by any Lender of
its rights or obligations under this Agreement or any Loan Document must be made
in compliance with this subsection 13.6 (and any purported assignment in
violation of this subsection shall be null and void).
(b) Any Lender may, in the ordinary course of its lending or investment
business and in accordance with applicable law, at any time sell to one or more
financial institutions or other entities ("Loan Participants") participating
interests in any Loan owing to such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a Loan
Participant, (i) such Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible for the performance thereof, (iii) such Lender shall remain
the holder of any such Loan, Commitment or other interest for all purposes under
this Agreement and the other Loan Documents, (iv) the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, and (v) no Loan Participant under any participation
shall have any right to approve any amendment or waiver of any provision of any
Loan Document, or any consent to any departure by any Loan Party therefrom,
except with respect to the matters described in clauses (i) and (ii) of the
proviso to the second sentence of subsection 13.1. The Borrower agrees that,
while an Event of Default shall have occurred and be continuing, if amounts
outstanding under this Agreement are due or unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Loan Participant shall, to the maximum extent permitted by applicable law,
be deemed to have the right of setoff in respect of its participating interest
in amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in subsection 13.7(a) as fully as if it were a
Lender hereunder. The Borrower also agrees that each Loan Participant shall be
entitled to the benefits of subsections 4.9, 4.10 and 4.11 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it were a Lender; provided that, in the case of subsection 4.10 such Loan
Participant shall have complied with the requirements of said subsection and
provided, further, that no Loan Participant shall be required to, on or before
the date it becomes a Loan Participant and as may be required thereafter,
deliver to the selling Lender the forms required in subsection 4.10, or be
entitled to receive any greater amount pursuant to any such subsection than the
transferor Lender would have been
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75
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Loan Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its lending or investment
business and in accordance with applicable law, at any time and from time to
time assign to any other Lender or any Affiliate thereof or, with the consent of
the Borrower and the Administrative Agent (which in each case shall not be
unreasonably withheld), to an additional bank or financial institution (an
"Assignee") all or any part of its rights and obligations under this Agreement
and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit H, executed by such Assignee and such
---------
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an Affiliate thereof, by the Borrower and the Administrative Agent) and
delivered to the Administrative Agent for its acceptance and recording in the
Register, provided that, in the case of any such assignment to an additional
bank or financial institution, the sum of the aggregate principal amount of
Loans, the aggregate amount of L/C Obligations and the aggregate amount of
unused Commitments being assigned and, if such assignment is of less than all of
the rights and obligations of the assigning Lender, the sum of the aggregate
principal amount of Loans, the aggregate amount of L/C Obligations and the
aggregate amount of the unused Commitments remaining with the assigning Lender
are each not less than $5,000,000 (or such lesser amount as may be agreed to by
the Borrower and the Administrative Agent). Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment which
occurs when any of the events described in Section 11(f) shall have occurred and
be continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall maintain
at the address of the Administrative Agent referred to in subsection 13.2 a copy
of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
the Commitments of, and principal amounts of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of a Loan or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Loan Documents, notwithstanding any
notice to the contrary. Any assignment of any Loan or other obligation
hereunder (whether or not evidenced by a Note) shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Borrower and the Administrative
Agent) together with, except in the case of an assignment pursuant to subsection
4.13, payment to the Administrative Agent of a registration and processing fee
of $3,500, the Administrative Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto record
the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower.
<PAGE>
76
(f) The Borrower authorizes each Lender to disclose to any Loan
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
subject to the provisions of subsection 13.15, any and all financial information
in such Lender's possession concerning the Borrower and its Affiliates which has
been delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law; provided, that any transfer of Loans or Notes
upon, or in lieu of, enforcement of or the exercise of remedies under any such
pledge shall be treated as an assignment thereof which shall not be made without
compliance with the requirements of this subsection 13.6.
13.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of its Loans or the
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 11(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to it, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan or the Reimbursement
Obligations owing to it, or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such Benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest. The Borrower agrees that each Lender so purchasing a portion of
another Lender's Loans and/or participating interests in any Letters of Credit
may exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set-
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Administrative Agent after any such set-off and application
made by such Lender, provided that the failure to give such notice shall not
affect the validity of such set-off and application.
13.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
<PAGE>
77
13.9 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
13.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
13.12 Submission To Jurisdiction; Waivers. The Borrower and Holdings
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgement
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from
any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower or Holdings at its address set forth in subsection 13.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential
damages.
13.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
<PAGE>
78
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and
the Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby
among the Lenders or among the Borrower and the Lenders.
13.14 WAIVERS OF JURY TRIAL. THE BORROWER, HOLDINGS, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
13.15 Confidentiality. Each Lender agrees to keep confidential (and to
cause its employees, officers, directors, agents, attorneys, accountants and
other professional advisors to keep confidential) all non-public information
provided to it by the Borrower or any Loan Party pursuant to or in connection
with this Agreement or any other Loan Documents designated as such by the
Borrower or such other Loan Party; provided that nothing herein shall prevent
any Lender from disclosing any such information (i) to the Administrative Agent
or any other Lender, (ii) to any Transferee or prospective Transferee which
agrees to comply with the provisions of this subsection, (iii) on a need-to-know
basis to its employees, directors, agents, attorneys, accountants and other
professional advisors (each of which shall be instructed to hold the same in
confidence), (iv) upon the request or demand of any Governmental Authority
(including, without limitation, the National Association of Insurance
Commissioners) having jurisdiction over such Lender, (v) in response to any
order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) which has been publicly
disclosed other than in breach of this Agreement or (vii) in connection with the
exercise of any remedy hereunder or under any of the other Loan Documents.
13.16 Usury Savings Clause. It is the intention of the parties hereto
to comply with applicable usury laws (now or hereafter enacted); accordingly,
notwithstanding any provision to the contrary in this Agreement, any Notes, any
of the other Loan Documents or any other document related hereto or thereto, in
no event shall this Agreement or any such other document require the payment or
permit the collection of interest in excess of the maximum amount permitted by
such laws. If from any circumstances whatsoever, fulfillment of any provision
of this Agreement, any Notes, any of the other Loan Documents or of any other
document pertaining hereto or thereto, shall involve transcending the limit of
validity prescribed by applicable law for the collection or charging of
interest, then, ipso facto, the obligation to be fulfilled shall be reduced to
the limit of such validity, and if form any such circumstances the
Administrative Agent and the Lenders shall ever receive anything of value as
interest or deemed interest by applicable law under this Agreement, any Notes,
any of the other Loan Documents or any other document pertaining hereto or
otherwise an amount that would exceed the highest lawful rate, such amount that
would be excessive interest shall be applied to the reduction of the principal
amount owing under the Loans or on account of any other indebtedness of the
Borrower, and not to the payment of interest, or if such excessive interest
exceeds the unpaid balance of principal of such indebtedness, such excess shall
be refunded to the Borrower. In determining whether or not the interest paid or
payable with respect to any indebtedness of the Borrower to the Administrative
Agent and the Lenders, under any specified contingency, exceeds the Highest
Lawful Rate (as hereinafter defined), the Borrower, the Administrative Agent and
the Lenders shall, to the maximum extent permitted by applicable law, (a)
<PAGE>
79
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, (c)
amortize, prorate, allocate and spread the total amount of interest throughout
the full term of such indebtedness so that interest thereon does not exceed the
maximum amount permitted by applicable law, and/or (d) allocate interest between
portions of such indebtedness, to the end that no such portion shall bear
interest at a rate greater than that permitted by applicable law.
To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes
is relevant to the Administrative Agent and the Lenders for the purpose of
determining the Highest Lawful Rate, the Administrative Agent and the Lenders
hereby elect to determine the applicable rate ceiling under such Article by the
indicated (weekly) rate ceiling form time to time in effect. Nothing set forth
in this subsection 13.16 is intended to or shall limit the effect or operation
of subsection 13.11.
For purposes of this subsection 13.16, "Highest Lawful Rate" shall mean
the maximum rate of nonusurious interest that may be contracted for, taken,
reserved or received on the Loans under laws applicable to the Administrative
Agent and the Lenders.
<PAGE>
80
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
DAL-TILE INTERNATIONAL INC.
By: /s/ Carlos E. Sala
--------------------------------------
Title: Executive Vice President,
Assistant Secretary and
Chief Financial Officer
DAL-TILE GROUP INC.
By: /s/ Carlos E. Sala
--------------------------------------
Title: Vice President and Chief
Financial Officer
<PAGE>
THE CHASE MANHATTAN BANKs as
Administrative Agent and as a Lender
By: /s/ William J. Caggiano
---------------------------
Title: Managing Director
<PAGE>
CREDIT SUISSE, NEW YORK BRANCH, as
Documentation Agent
By: /s/ Chris Cunningham
----------------------------
Title: Member of Senior Management
By: /s/ Ira Lubinsky
----------------------------
Title: Associate
CREDIT SUISSE, LOS ANGELES BRANCH, as
a Lender
By: /s/ David J. Worthington
----------------------------
Title: Member of Senior Management
By: /s/ Maria N. Gaspara
----------------------------
Title: Associate
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent and as a Lender
By: /s/ Edward C. Forst
----------------------------
Title: Authorized Signatoxy
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ Allen King
----------------------------
Title: Vice President
<PAGE>
ALLIED IRISH BANKS P.L.C.,
CAYMAN ISLANDS BRANCH
By: /s/ Marcia Meeker
----------------------------
Title: Vice President
By: /s/ W.R. Strickland
----------------------------
Title: Senior Vice President
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Lisa Marshall
----------------------------
Title: Managing Director
<PAGE>
THE BANK OF NEW YORK
By: /s/ Steven Ross
----------------------------
Title: Assistant Vice President
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ Terry K. Fryett
----------------------------
Title: Authorized Signatory
<PAGE>
CIBC, INC.
By: /s/ Gary C. Gaskill
----------------------------
Title: Authorized Signatory
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Alain Papiasse
---------------------------
Title: Executive Vice President
<PAGE>
CRESTAR BANK
By: /s/ James Duvall
---------------------------
Title: Vice President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Jennifer Gilpin
---------------------------
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Kevin McCarthy
---------------------------
Title: Vice President
<PAGE>
FLEET BANK, N.A.
By: /s/ Dilcia Pena Hill
---------------------------
Title: Vice President
<PAGE>
THE FUJI BANK, LIMITED, HOUSTON
AGENCY
By: /s/ David Kelley
----------------------------
Title: Senior Vice President
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By: /s/ Junri Oda
---------------------------
Title: Senior Vice President
and Senior Manager
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: /s/ Bianca Hemmen
---------------------------
Title: Senior Vice President
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Gregory T. Gaschler
---------------------------
Title: Vice President
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Richard M. Lewis
---------------------------
Title: Vice President
<PAGE>
Annex A
-------
Pricing Grid
------------
Eurodollar ABR Commitment
Leverage Ratio Level Applicable Margin Applicable Margin Fee Rate
- -------------------- ----------------- ----------------- ----------
I 1.25% 0.25% 0.375%
II 1.00% 0% 0.30%
III .75% 0% 0.25%
IV .625% 0% 0.225%
V .50% 0% 0.20%
VI .375% 0% 0.175%
<PAGE>
EXHIBIT 10.2
PLEDGE AGREEMENT dated as of October 4, 1996 made by DAL-TILE GROUP
INC., a Delaware corporation (the "Pledgor"), in favor of THE CHASE MANHATTAN
BANK ("Chase"), as administrative agent (in such capacity, the "Administrative
Agent") for the lenders (the "Lenders") from time to time parties to the Credit
and Guarantee Agreement, dated as of August 14, 1996 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among the
Pledgor, Dal-Tile International Inc., a Delaware corporation (the "Parent"), the
Administrative Agent, Credit Suisse, as Documentation Agent, Goldman Sachs
Credit Partners L.P., as Syndication Agent, and the Lenders.
WITNESSETH:
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make loans to, and the issuing Bank has agreed to issue certain
letters of credit for the account of, the Pledgor upon the terms and subject to
the conditions set forth therein;
WHEREAS, the Pledgor is the legal and beneficial owner of the shares of
Pledged Stock (as hereinafter defined) issued by the issuer (as hereinafter
defined); and
WHEREAS, pursuant to subsection 7.10 of the Credit Agreement, the
Pledgor is required to execute and deliver this Pledge Agreement to the
Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent, the Lenders, the Syndication Agent and the Documentation
Agent to enter into the Credit Agreement and to induce the Lenders to make
their respective loans to, and the Issuing Bank to issue certain letters of
credit for the account of, the Pledgor under the Credit Agreement, the Pledgor
hereby agrees with the Administrative Agent, for the ratable benefit of the
Lenders, as follows:
<PAGE>
2
1. Defined Terms. Unless otherwise defined herein, terms that are
-------------
defined in the Credit Agreement and used herein are so used as so defined, and
the following terms shall have the following meanings:
"Code": the Uniform Commercial Code from time to time in
effect in the State of New York.
"Collateral": the Pledged Stock and all Proceeds thereof.
"Issuer": the company noted on Schedule 1 hereto.
"Obligations": as defined in the Credit Agreement.
"Pledge Agreement": this Pledge Agreement, as amended, supplemented
or otherwise modified from time to time.
"Pledged Stock": 20,475,000 (twenty million four hundred and
seventy five thousand) shares representing 65%
(sixty five percent) of Capital Stock of the
Issuer and all stock certificates, options or
rights of any nature whatsoever that may be
issued or granted by the Issuer to the Pledgor
while this Pledge Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in
Section 9-396(1) of the Code on the date hereof
and, in any event, shall include, without
limitation, all dividends or other income from
the Pledged Stock, and
<PAGE>
3
any and all collections on the foregoing or
distributions with respect to the foregoing.
2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to the
----------------------------------
Administrative Agent, for the ratable benefit of the Lenders, all of the
Pledgor's right, title and Interest in the Pledged Stock, and hereby transfers
and grants to the Administrative Agent, for the ratable benefit of the Lenders,
a first security interest in all of the Pledgor's right, title and interest in
the Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
3. Creation of the Pledge; Endorsements. In order to create and constitute
------------------------------------
a first security interest in and on the Pledged Stock, the Pledgor in this act
(i) endorses in guarantee in favor of the Administrative Agent, for the ratable
benefit of the Lenders, the certificates representing the Pledged Stock, (ii)
delivers the endorsed certificates to the Administrative Agent, and (iii)
registers the Pledged Stock in the shareholders' registry book of the Issuer.
4. Representations and Warranties. The Pledgor represents and warrants
------------------------------
that:
a. the shares of Pledged Stock listed on Schedule I constitute 65% (sixty
five percent) of the issued and outstanding shares of all classes of
the Capital Stock of the issuer;
b. all the shares of Pledged Stock have been duly and validly issued and
are fully paid and nonassessable;
c. the Pledgor is the record and beneficial owner of, and has good title
to, the Pledged Stock, free of any and all Liens or options in favor
of, or claims of, any other Person, except the Lien created under this
Pledge Agreement;
d. upon endorsement in guarantee and delivery to the Administrative Agent
of the stock certificates evidencing the Pledged Stock, together with
the registry of the Pledged Stock in the shareholders' registry book of
the Issuer, the Lien granted pursuant to this Pledge
<PAGE>
4
Agreement will constitute a valid, perfected first priority Lien on the
Collateral (except, with respect to Proceeds, only to the extent
permitted by Section 9-306 of the Code), enforceable as such against
all creditors of the Pledgor and any Persons purporting to purchase any
Collateral from the Pledgor except in each case as enforceability may
be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing; and
e. the Pledgor's chief executive office and chief place of business, and
the place where the Pledgor keeps its records concerning the
Collateral, is located at: 7834 Hawn Freeway, P.O. Box 17130, Dallas,
Texas 75217, or such other location as the Pledgor shall inform the
Administrative Agent in accordance with Section 5(c).
The Pledgor agrees that the foregoing representations and warranties shall
be deemed to have been made by it on each Borrowing Date by the Pledgor under
the Credit Agreement on and as of such Borrowing Date as though made hereunder
on and as of such Borrowing Date.
5. Covenants. The Pledgor covenants and agrees with the Administrative
---------
Agent and the Lenders, that, from and after the date of this Pledge Agreement
until the Obligations are paid in full and the Commitments are terminated:
a. If the Pledgor shall, as a result of its ownership of the Collateral,
become entitled to receive or shall receive any stock certificate
(including, without limitation any certificate representing a stock
dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in
connection with any organization), promissory note or other instrument,
option or rights, whether in addition to, in substitution of, as a
conversion of, or in exchange for any of the collateral, or otherwise
in respect thereof, the Pledgor shall accept the same as the agent of
the Administrative Agent and the Lenders, hold the same in deposit or
trust for the Administrative Agent and the Lenders and deliver the same
forthwith to the Administrative Agent in the exact form received, duly
endorsed in guarantee by the Pledgor to the Administrative Agent, to be
held by the Administrative Agent, subject to the terms
<PAGE>
5
hereof, as additional collateral security for the Obligations. Any sums
paid upon or in respect of the Collateral upon the liquidation or
dissolution of the Issuer shall be paid over to the Administrative
Agent to be held by it hereunder as additional collateral security for
the Obligations, and in case any distribution of capital shall be made
on or in respect to the Collateral or any property shall be distributed
upon or with respect to the Collateral pursuant to the recapitalization
or reclassification of the capital of the Issuer or pursuant to the
reorganization thereof, the property so distributed shall be delivered
to the Administrative Agent to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Collateral shall be
received by the Pledgor, the Pledgor shall, until such money or
property is paid or delivered to the Administrative Agent, hold such
money or property in deposit or trust for the Lenders, segregated from
other funds of the Pledgor, as additional collateral security for the
Obligations. If (i) the Collateral grants optional rights, (ii) the
Pledgor may not exercise such rights directly, and (iii) the
Administrative Agent shall have the right to exercise such rights, the
Administrative Agent shall, so long as no Default or Event of Default
shall have then occurred and be continuing or would result therefrom,
exercise such rights as instructed by the Pledgor, provided that, the
exercise of such optional rights on behalf of the Pledgor (at the
reasonable judgment of the Administrative Agent) would not be
inconsistent or would not result in a violation of applicable law, the
Credit Agreement or any other of the Loan Documents, and provided
further that, the Pledgor provides the Administrative Agent with
sufficient funds to exercise those rights, if required, at least 2 days
prior to the relevant payment date.
b. Without the prior written consent of the Administrative Agent, the
Pledgor will not (i) vote to enable, or take any other action to
permit, the Issuer to issue any stock or other equity securities of
any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any stock or other
equity securities of any nature of such issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral, or (iii) create, incur or permit to exist
any Lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the Lien
provided for by this Pledge Agreement. The Pledgor will defend the
right, title and interest of the Administrative Agent and the Lenders
in and to the Collateral against the claims and demands of all Persons
whomsoever.
<PAGE>
6
c. At any time and form time to time, upon the written request of the
Administrative Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge Agreement and
of the rights and powers herein granted. If any amount payable under or
in connection with any of the Collateral shall be or become evidenced by
any promissory note, other instrument or chattel paper, such note,
instrument or chattel paper shall be immediately delivered to the
Administrative Agent, duly endorsed in guarantee or otherwise in a
manner satisfactory to the Administrative Agent pursuant to applicable
law, to be held as Collateral pursuant to this Pledge Agreement.
d. The Pledgor agrees to pay, and to save the Administrative Agent and the
Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or
other similar taxes which may be payable or determined to be payable
with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.
e. The Pledgor will not, unless it shall give 45 days' prior written notice
to such effect to the Administrative Agent (i) change the location of
its chief executive office or chief place of business from that
specified in Section 4(e) hereof, or remove its books and records from
such location or (ii) change its name, identify or structure to such an
extent that any financing statements filed by the Administrative Agent
in connection with this Agreement would become misleading.
f. The Pledgor shall ensure that all Pledged Stock will be registered in
the name of the Administrative Agent in the shareholders' registry book
of the issuer and that all certificates representing or evidencing any
substitution of or addition to the Pledged Stock shall forthwith after
issuance be indorsed in guarantee in favor of the Administrative Agent,
for the ratable benefit of the Lenders.
<PAGE>
7
6. Cash Dividends; Voting Rights; Interest Payments.
------------------------------------------------
a. Unless an Event of Default shall have occurred and be continuing and the
Administrative Agent shall (unless such Event of Default is an Event of
Default specified in Section 11(f) of the Credit Agreement, in which
case no such notice need be given) have given notice to the Pledgor of
the Administrative Agent's intent to exercise its rights pursuant to
Section 7 below, the Pledgor shall be permitted to receive all cash
dividends paid in the normal course of business of the Issuer and
consistent with past practice to the extent permitted in the Credit
Agreement in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock, provided,
--------
however, that no vote shall be cast or corporate right exercised or
-------
other action taken which, in the Administrative Agent's reasonable
judgment, would impair the Collateral or which would be inconsistent
with or result in any violation of any provision of the Credit Agreement
or any of the other Loan Documents. For such purposes, the
Administrative Agent shall provide such stock proxies to the Pledgor as
may be required under applicable law to enable it, pursuant to the
requirements of such applicable law to exercise such voting and other
corporate rights in connection with the Pledged Stock as may be
permitted to be exercised by it under, and in a manner consistent with,
this Section.
b. Unless an Event of Default shall have occurred and be continuing and the
Administrative Agent shall (unless such Event of Default is an Event of
Default specified in Section 11(f) of the Credit Agreement, in which
case no such notice need be given) have given notice to the Pledgor of
the Administrative Agent's intent to exercise its rights pursuant to
Section 7 below, the Pledgor shall have and may exercise all other
rights of ownership with respect to any additional Collateral paid
thereunder or in respect thereof; provided, however, that the foregoing
-------- -------
provision shall not entitle the Pledgor to take any action in respect of
the Collateral paid thereunder or in respect thereof that would
otherwise be prohibited under the Loan Documents. For such purposes, the
Administrative Agent shall provide such stock proxies to the Pledgor as
may be required under applicable law to enable it, pursuant to the
requirements of such applicable law, to exercise such voting and other
corporate rights in connection with the Pledged Stock as may be
permitted to be exercised by it under, and in a manner consistent with,
this Section.
<PAGE>
8
c. Each request by the Pledgor to the Administrative Agent to deliver
stock proxies in accordance with this Section shall be accompanied by a
certificate of a Responsible Officer of the Pledgor to the effect that
such stock proxies are required under applicable law to enable it to
exercise its rights under this Section in respect of the Pledged Stock.
7. Rights of the Lenders and the Administrative Agent.
-------------------------------------------------
a. If an Event of Default shall occur and be continuing and the
Administrative Agent shall (unless such Event of Default is an Event of
Default specified in Section 11(f) of the Credit Agreement, in which
case no such notice need be given) give notice of its intent to
exercise its rights hereunder to the Pledgor, (i) the Administrative
Agent shall have the right to receive any and all cash dividends paid
in respect of the Pledged Stock and make application thereof to the
Obligations in such order as the Administrative Agent may determine,
and (ii) the Administrative Agent or its nominee may thereafter
exercise (A) all voting, corporate and other rights pertaining to such
shares of the Pledged Stock at any meeting of shareholders of the
issuer or otherwise and (B) any and all rights of conversion,
exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Stock upon the
merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of the issuer, or upon
the exercise by the Pledgor or the Administrative Agent of any right,
privilege or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all
of the Pledged Stock with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as
it may determine), all without liability except to account for property
actually received by it and except for its gross negligence or willful
misconduct.
b. The rights of the Administrative Agent and the Lenders hereunder shall
not be conditioned or contingent upon the pursuit by the Administrative
Agent or any Lender of any right or remedy against the issuer or
against any other Person which may be or become
<PAGE>
9
liable in respect of all or any part of the Obligations or
against any collateral security therefor, guarantee therefor or
right of set-off with respect thereto. Neither the
Administrative Agent nor any Lender shall be liable for any
failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so, except to the
extent that such failure constitutes gross negligence or willful
misconduct, nor shall the Administrative Agent be under any
obligation to sell or otherwise dispose of any Collateral upon
the request of the Pledgor or any other Person or to take any
other request of the Pledgor or any other Person or to take any
other action whatsoever with regard to the Collateral or any
part thereof.
8. Remedies. In the event that any portion of the Obligations has
--------
been declared or becomes due and payable in accordance with the terms of the
Credit Agreement and such Obligations have not been paid in full, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Pledge Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party to the fullest extent permitted under
applicable law. Without limiting the generality of the foregoing, the
Administrative Agent, may in such circumstances, once all applicable legal
requirements have been complied with, forthwith collect, receive, appropriate
and realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof. The Administrative Agent, the Syndication
Agent, the Documentation Agent, or any Lender shall have the right upon any such
public sale or sales, and , to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Pledgor. The
Administrative Agent shall hold any Proceeds hereunder for the benefit of the
Lenders as collateral security for the Obligations (whether matured or
unmatured), and/or the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, may then or at any time thereafter, in the
sole discretion of the Administrative Agent, be applied by the Administrative
Agent against the Obligations then due and owing in the following order of
priority:
FIRST, to the payment of all reasonable costs and expenses of
every kind incurred by the Administrative Agent in connection with this
Pledge Agreement, any other Loan Document or any of the Obligations,
including, without limitation, (i) all costs incidental to the care or
safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Administrative Agent and the Lenders
hereunder, (ii) court costs, (iii) the reasonable fees and disbursements
of legal counsel and agents to the Administrative Agent, (iv) any other
reasonable costs or expenses incurred in connection with the exercise by
the Administrative Agent of any right or
<PAGE>
10
remedy under this Pledge Agreement or any other Loan Document and (v)
without duplication, any amounts which are required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, to be paid
by the Administrative Agent;
SECOND, to the ratable satisfaction of all other Obligations; and
THIRD, to the Pledgor or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same.
To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Administrative Agent, the
Syndication Agent, the Documentation Agent or any Lender arising out of the
lawful exercise by them of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition.
9. Registration Rights; Private Sales.
----------------------------------
a. If the Administrative Agent shall determine to exercise its right to
sell any or all of the Pledged Stock pursuant to Section 8 hereof, and if in the
opinion of the Administrative Agent it is necessary or advisable to have the
Pledged Stock or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will cause the Issuer whose stocks are to be so registered to (i)
execute and deliver, and cause the directors and officers of the Issuer to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts as may be, in the opinion of the Administrative Agent,
necessary or advisable to register the Pledged Stock or that portion thereof to
be sold, under the provisions of the Securities Act, (ii) use its best efforts
to cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock or that portion thereof to be sold, and (iii) make
all amendments thereto and/or to the related prospectus that, in the opinion of
the Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The
<PAGE>
11
Pledgor agrees to cause the Issuer to comply with the provisions of
the securities or "Blue Sky" laws of any and all state or foreign
jurisdictions that the Administrative Agent shall designate and to
make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) that will satisfy
the provisions of Section 11(a) of the Securities Act.
b. The Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Pledged Stock by reason
of certain prohibitions contained in the Securities Act and
applicable state or foreign securities laws or otherwise, and may
be compelled to resort to one or more private sales thereof to
restricted group of purchasers that will be obliged to agree, among
other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges and agrees that any such private
sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to
have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale
of any of the Pledged Stock for the period of time necessary to
permit the Issuer to register such securities for public sale under
the Securities Act, or under applicable state or foreign securities
laws, even if the Issuer would agree to do so.
c. The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such
sale or sales of all or any portion of the Pledged Stock pursuant
to this Section 9 valid and binding and in compliance with any and
all other applicable Requirements of Law. The Pledgor further
agrees that a breach of any of the covenants contained in this
Section 9 will cause irreparable injury to the Administrative Agent
and the Lenders, that the Administrative Agent and the Lenders have
no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section
9 shall be specifically enforceable against the Pledgor, and the
Pledgor hereby waives and agrees not to assert any defenses against
an action for specific performance of such covenants.
<PAGE>
12
10. Limitation on Duties Regarding Collateral. The Administrative
-----------------------------------------
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similiar securities and poerty for its own
account. None of the Administrative Agent, the Syndication Agent, the
Documentation Agent or any Lender or their respective directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so (except to the extent
the same constitutes gross negligence or willful misconduct or otherwise
required under applicable law) or shall be under any obligation to sell or
otherwise dispose of any Collateral upon the request of the Pledgor or
otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
12. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any juridiction shall, as to such jurisdication,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other juridisction.
13. Section Headings. The Section headings used in this Pledge
----------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver, Cumulative Remedies. None of the Administrative Agent,
------------------------------
the Syndication Agent, the Documentation Agent or any Lender shall by any act
(except by a written instrument pursuant to Section 15 hereof) be deemed to have
waived any right or remedy hereunder. No failure to exercise, no any delay in
exercise, or any delay in exercising, on the part of the Administrative Agent or
any Lender any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Administrative Agent,
the Syndication Agnet, the Documentation Agent or any Lender or any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent, the Syndication Agent, the
Documentation Agent or such Lender would otherwise have on any future occasion.
The rights
<PAGE>
13
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.
15. Waivers and Amendments; Successors and Assigns; Governing Law.
-------------------------------------------------------------
None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Administrative Agent, provided that any provision of this
--------
Pledge Agreement may be waived by the Administrative Agent in a letter or
agreement executed by the Administrative Agent or by telex or facsimile
transmission from the Administrative Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Administrative Agent, the Syndication Agent, the Documentation
Agent and the Lenders and their respective successors and assigns. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IN CONNECTION
-------- -------
WITH ANY ACTION OR PROCEEDING BROUGHT IN ANY COURT IN THE UNITED MEXICAN STATES,
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE UNITED MEXICAN STATES.
16. Notices. Notices by the Administrative Agent the Pledgor, or the
-------
Issuer, may be given by mail, by telex or by facsimile transmission, addressed
or transmitted to such person at its address or transmission number set forth in
the Subsidiaries Guarantee or under its signature below, as the case may be, and
shall be effective (a) in the case of mail, three Business Days after deposit in
the postal system, first class postage pre-paid, and (b) in the case of telex or
facsimile notices, when sent, answerback received. The Pledgor and the Issuer
may change their respective addresses and transmission numbers by written notice
to the Administrative Agent.
17. Irrevocable Authorization and Instruction to Issuers. The Pledgor
----------------------------------------------------
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that the Issuer shall be
fully protected in so complying.
<PAGE>
14
18. Authority of Administrative Agent. The Pledgor acknowledges that
---------------------------------
the rights and responsibilities of the Administrative Agent under this Pledge
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Pledgor, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Lenders with full and valid authority so to act or refrain from acting, and
neither the Pledgor nor the Issuer shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
19. Submission to Jurisdiction.
--------------------------
a. The Pledgor consents and agrees that any suit, action or proceeding
with respect to this Pledge Agreement, may be brought in the courts
of the United Mexican States.
b. For everything related to the interpretation of, compliance with,
or judicial request for enforcement of this Pledge Agreement in the
United Mexican States, the Pledgor hereby irrevocably and expressly
submits to the jurisdiction of the competent courts of Mexico City,
Federal District, United Mexican States, therefore expressly
waiving any other jurisdiction it may be entitled to be reason of
its present or future domicile.
20. Integration. This Agreement and other Loan Documents represent the
-----------
agreement of the Pledgor, the Administrative Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent or any Lender
relative to subject matter hereof not expressly set forth or referred to herein
or in the other Loan Documents.
<PAGE>
15
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered as of the date first above written.
DAL-TILE GROUP INC.
By: /s/ Carlos E. Sele
-----------------------
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each Issuer referred to in the foregoing Pledge Agreement hereby
acknowledges receipt of a copy hereof and agrees to be bound thereby and to
comply with the terms thereof insofar as such terms are applicable to it. Each
Issuer agrees to notify the Administrative Agent promptly in writing of the
occurrence of any of the events described in Section 5(a) of the Pledge
Agreement. Each Issuer further (i) agrees that it will comply with the terms of
Section 5(b) of the pledge Agreement to the extent applicable to it and (ii)
agrees that the terms of Section 9(c) of the Pledge Agreement shall apply to it,
mutatis mutandis, with respect to all actions that may be required of it under
- ------- --------
or pursuant to or arising out of Section 9 of the Pledge Agreement.
By: /s/ Carlos E. Sela
-----------------------
Title:
<PAGE>
SCHEDULE 1 TO
PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
----------------------------
Stock Percentage
Class of Certificate No. of of Issued
Issuer Stock No. Shares Shares
- ------ -------- ----------- ------ ----------
Dal-Tile Mexico, S.A. de
C.V. Common 1 20,475,000 65%
<PAGE>
EXHIBIT 10.3
HOLDINGS PLEDGE AGREEMENT
-------------------------
PLEDGE AGREEMENT dated as of August 14, 1996 made by DAL-TILE INTERNATIONAL
INC., a Delaware corporation (the "Pledgor"), in favor of THE CHASE MANHATTAN
-------
BANK ("Chase"), as administrative agent (in such capacity, the "Administrative
----- --------------
Agent") for the lenders (the "Lenders") parties to the Credit and Guarantee
- ----- -------
Agreement, dated as of August 14, 1996 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Pledgor, DAL-TILE
----------------
GROUP INC., a Delaware corporation (the "Issuer"), the Administrative Agent,
------
Credit Suisse, as Documentation Agent, Goldman Sachs Credit Partners L.P., as
Syndication Agent, and the Lenders.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make loans to, and the Issuing Bank has agreed to issue certain
letters of credit for the account of, the Issuer upon the terms and subject to
the conditions set forth therein; and
WHEREAS, the Pledgor is the legal and beneficial owner of the shares of
Pledged Stock (as hereinafter defined) issued by the Issuer;
WHEREAS, pursuant to Section 10 of the Credit Agreement, the Pledgor has
guaranteed to the Administrative Agent and the Lenders the punctual payment and
performance of all amounts and other obligations owing by the Issuer pursuant to
the Credit Agreement; and
WHEREAS, pursuant to subsection 7.10 of the Credit Agreement, the Pledgor
is required to execute and deliver this Pledge Agreement to the Administrative
Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent, the Lenders, the Syndication Agent and the Documentation
Agent to enter into the Credit Agreement and to induce the Lenders to make their
respective loans to, and the Issuing Bank to issue certain letters of credit for
the account of, the Issuer under the Credit Agreement, the Pledgor hereby agrees
with the Administrative Agent, for the ratable benefit of the Lenders, as
follows:
1. Defined Terms. Unless otherwise defined herein, terms that are defined
-------------
in the Credit Agreement and used herein are so used as so defined, and the
following terms shall have the following meanings:
"Code": the Uniform Commercial Code from time to time in effect in the
----
State of New York.
<PAGE>
2
"Collateral": the Pledged Stock and all Proceeds thereof.
----------
"Guarantee Obligations": all indebtedness, obligations and liabilities of
---------------------
the Pledgor under the Credit Agreement, including, without limitation, all
guarantee obligations in respect of the unpaid principal of and interest on the
Loans, all obligations and liabilities of the Issuer with respect to the Letters
of Credit and all other Obligations of the Issuer to the Administrative Agent
and the Lenders, whether direct or indirect, absolute or contingent, matured or
unmatured, due or to become due, or now existing or hereafter incurred under the
Credit Agreement and the other Loan Documents.
"Pledge Agreement": this Pledge Agreement, as amended, supplemented or
----------------
otherwise modified from time to time.
"Pledged Stock": all of the shares of capital stock of the Issuer listed
-------------
on Schedule I hereto and all the shares of capital stock of any other Material
Subsidiary of the Pledgor organized in the United States now owned or at any
time hereafter acquired by the Pledgor or in which the Pledgor now has or may
from time to time acquire any right, title or interest, together with all stock
certificates, options or rights of any nature whatsoever that may be issued or
granted by the Issuer to the Pledgor while this Pledge Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of
--------
the Code on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock, and any and
all collections on the foregoing or distributions with respect to the foregoing.
2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to the
----------------------------------
Administrative Agent, for the ratable benefit of the Lenders, all of the
Pledgor's right, title and interest in the Pledged Stock, and hereby transfers
and grants to the Administrative Agent, for the ratable benefit of the Lenders,
a first security interest in all of the Pledgor's right, title and interest in
the Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Guarantee Obligations.
3. Stock Powers; Endorsements. Concurrently with the delivery to the
--------------------------
Administrative Agent of each certificate representing one or more shares of
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor.
4. Representations and Warranties. The Pledgor represents and warrants
------------------------------
that:
(a) the shares of Pledged Stock listed on Schedule I constitute all of the
issued and outstanding shares of all classes of the capital stock of the Issuer;
<PAGE>
3
(b) all the shares of Pledged Stock have been duly and validly issued and
are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and has good title
to, the Pledged Stock, free of any and all Liens or options in favor of, or
claims of, any other Person, except the Lien created by this Pledge Agreement;
and
(d) upon delivery to the Administrative Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge Agreement
will constitute a valid, perfected first priority Lien on the Collateral
(except, with respect to Proceeds, only to the extent permitted by Section 9-306
of the Code), enforceable as such against all creditors of the Pledgor and any
Persons purporting to purchase any Collateral from the Pledgor except in each
case as enforceability may be affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
(e) the Pledgor's chief executive office and chief place of business, and
the place where the Pledgor keeps its records concerning the Collateral, is
located at: 7834 C.F. Hawn Freeway, P.O. Box 17130, Dallas, Texas 75217, or
such other location as the Pledgor shall inform the Administrative Agent in
accordance with subsection 5(e).
The Pledgor agrees that the foregoing representations and warranties shall
be deemed to have been made by it on each Borrowing Date by the Issuer under the
Credit Agreement on and as of such Borrowing Date as though made hereunder on
and as of such Borrowing Date.
5. Covenants. The Pledgor covenants and agrees with the Administrative
---------
Agent and the Lenders, that, from and after the date of this Pledge Agreement
until the Guarantee Obligations are paid in full and the Commitments are
terminated:
(a) If the Pledgor shall, as a result of its ownership of the Collateral,
become entitled to receive or shall receive any stock certificate (including,
without limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
promissory note or other instrument, option or rights, whether in addition to,
in substitution of, as a conversion of, or in exchange for any of the
Collateral, or otherwise in respect thereof, the Pledgor shall accept the same
as the agent of the Administrative Agent and the Lenders, hold the same in trust
for the Administrative Agent and the Lenders and deliver the same forthwith to
the Administrative Agent in the exact form received, duly indorsed by the
Pledgor to the Administrative Agent, if required, together with an undated stock
power or endorsement, as appropriate, covering such certificate, note or
instrument duly executed in blank by the Pledgor and with, if the Administrative
Agent so requests, signature guaranteed, to be held by the Administrative Agent,
subject to the terms hereof, as additional collateral security for the Guarantee
Obligations. Any sums paid upon or in respect of the
<PAGE>
4
Collateral upon the liquidation or dissolution of the Issuer shall be paid over
to the Administrative Agent to be held by it hereunder as additional collateral
security for the Guarantee Obligations, and in case any distribution of capital
shall be made on or in respect of the Collateral or any property shall be
distributed upon or with respect to the Collateral pursuant to the
recapitalization or reclassification of the capital of the Issuer or pursuant to
the reorganization thereof, the property so distributed shall be delivered to
the Administrative Agent to be held by it hereunder as additional collateral
security for the Guarantee Obligations. If any sums of money or property so paid
or distributed in respect of the Collateral shall be received by the Pledgor,
the Pledgor shall, until such money or property is paid or delivered to the
Administrative Agent, hold such money or property in trust for the Lenders,
segregated from other funds of the Pledgor, as additional collateral security
for the Guarantee Obligations.
(b) Without the prior written consent of the Administrative Agent, the
Pledgor will not (i) vote to enable, or take any other action to permit, the
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of the Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, or (iii) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title and
interest of the Administrative Agent and the Lenders in and to the Collateral
against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of the
Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will
promptly and duly execute and deliver such further instruments and documents and
take such further actions as the Administrative Agent may reasonably request for
the purposes of obtaining or preserving the full benefits of this Pledge
Agreement and of the rights and powers herein granted. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note, other instrument or chattel paper, such note, instrument
or chattel paper shall be immediately delivered to the Administrative Agent,
duly endorsed in a manner satisfactory to the Administrative Agent, to be held
as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Administrative Agent and
the Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Pledge Agreement.
(e) The Pledgor will not, unless it shall give 45 days' prior written
notice to such effect to the Administrative Agent, (i) change the location of
its chief executive office or chief place of business from that specified in
Section 4(e) hereof, or remove its books and records from such location or (ii)
change its name, identity or structure to such an extent that
<PAGE>
5
any financing statements filed by the Administrative Agent in connection with
this Agreement would become misleading.
6. Cash Dividends; Voting Rights; Interest Payments. (a) Unless an Event
------------------------------------------------
of Default shall have occurred and be continuing and the Administrative Agent
shall (unless such Event of Default is an Event of Default specified in
subsection 11(f) of the Credit Agreement, in which case no such notice need be
given) have given notice to the Pledgor of the Administrative Agent's intent to
exercise its rights pursuant to paragraph 7 below, the Pledgor shall be
permitted to receive all cash dividends paid in the normal course of business of
the Issuer and consistent with past practice to the extent permitted in the
Credit Agreement in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock, provided, however, that no
-------- -------
vote shall be cast or corporate right exercised or other action taken which, in
the Administrative Agent's reasonable judgment, would impair the Collateral or
which would be inconsistent with or result in any violation of any provision of
the Credit Agreement or any of the other Loan Documents.
(b) Unless an Event of Default shall have occurred and be continuing and
the Administrative Agent shall (unless such Event of Default is an Event of
Default specified in subsection 11(f) of the Credit Agreement, in which case no
such notice need be given) have given notice to the Pledgor of the
Administrative Agent's intent to exercise its rights pursuant to paragraph 7
below, the Pledgor shall have and may exercise all other rights of ownership
with respect to any additional Collateral paid thereunder or in respect thereof;
provided, however, that the foregoing provision shall not entitle the Pledgor to
- -------- -------
take any action in respect of the Collateral paid thereunder or in respect
thereof that would otherwise be prohibited under the Loan Documents.
7. Rights of the Lenders and the Administrative Agent. (a) If an Event
--------------------------------------------------
of Default shall occur and be continuing and the Administrative Agent shall
(unless such Event of Default is an Event of Default specified in subsection
11(f) of the Credit Agreement, in which case no such notice need be given) give
notice of its intent to exercise its rights hereunder to the Pledgor, (i) the
Administrative Agent shall have the right to receive any and all cash dividends
paid in respect of the Pledged Stock and make application thereof to the
Guarantee Obligations in such order as the Administrative Agent may determine,
and (ii) all shares of the Pledged Stock shall be registered in the name of the
Administrative Agent or its nominee, and the Administrative Agent or its nominee
may thereafter exercise (A) all voting, corporate and other rights pertaining to
such shares of the Pledged Stock at any meeting of shareholders of the Issuer or
otherwise and (B) any and all rights of conversion, exchange, subscription and
any other rights, privileges or options pertaining to such shares of the Pledged
Stock as if it were the absolute owner thereof (including, without limitation,
the right to exchange at its discretion any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of the Issuer, or upon the exercise by the
Pledgor or the Administrative Agent of any right, privilege or option pertaining
to such shares of the Pledged Stock, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as it may
<PAGE>
6
determine), all without liability except to account for property actually
received by it and except for its gross negligence or willful misconduct, but
the Administrative Agent shall have no duty to the Pledgor to exercise any such
right, privilege or option and shall not be responsible for any failure to do so
or delay in so doing.
(b) The rights of the Administrative Agent and the Lenders hereunder shall
not be conditioned or contingent upon the pursuit by the Administrative Agent or
any Lender of any right or remedy against the Issuer or against any other Person
which may be or become liable in respect of all or any part of the Guarantee
Obligations or the Obligations or against any collateral security therefor,
guarantee therefor or right of set-off with respect thereto. Neither the
Administrative Agent nor any Lender shall be liable for any failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so, except to the extent that such failure constitutes gross negligence or
willful misconduct, nor shall the Administrative Agent be under any obligation
to sell or otherwise dispose of any Collateral upon the request of the Pledgor
or any other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
8. Remedies. In the event that any portion of the Obligations has been
--------
declared or becomes due and payable in accordance with the terms of the Credit
Agreement and such Obligations have not been paid in full, the Administrative
Agent, on behalf of the Lenders, may exercise, in addition to all other rights
and remedies granted in this Pledge Agreement and in any other instrument or
agreement securing, evidencing or relating to the Guarantee Obligations or the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Administrative Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Pledgor, the Issuer, or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any exchange
or broker's board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent, the Syndication Agent,
the Documentation Agent, or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived or released. The Administrative Agent shall hold any Proceeds
hereunder for the benefit of the Lenders as collateral security for the
Guarantee Obligations (whether matured or unmatured), and/or the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale, may
then or at any time thereafter, in the sole discretion of the Administrative
Agent, be applied by the Administrative Agent against the Guarantee Obligations
then due and owing in the following order of priority:
<PAGE>
7
FIRST, to the payment of all reasonable costs and expenses of every
kind incurred by the Administrative Agent in connection with this Pledge
Agreement, any other Loan Document or any of the Guarantee Obligations,
including, without limitation, (i) all costs incidental to the care or
safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Administrative Agent and the Lenders
hereunder, (ii) court costs, (iii) the reasonable fees and disbursements of
legal counsel and agents to the Administrative Agent, (iv) any other
reasonable costs or expenses incurred in connection with the exercise by
the Administrative Agent of any right or remedy under this Pledge Agreement
or any other Loan Document and (v) without duplication, any amounts which
are required by any provision of law, including, without limitation,
Section 9-504(1)(c) of the Code, to be paid by the Administrative Agent;
SECOND, to the ratable satisfaction of all other Guarantee
Obligations; and
THIRD, to the Pledgor or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same.
To the extent permitted by applicable law, the Pledgor waives all claims,
damages and demands it may acquire against the Administrative Agent, the
Syndication Agent, the Documentation Agent or any Lender arising out of the
lawful exercise by them of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition.
9. Registration Rights; Private Sales. (a) If the Administrative
----------------------------------
Agent shall determine to exercise its right to sell any or all of the Pledged
Stock pursuant to paragraph 8 hereof, and if in the opinion of the
Administrative Agent it is necessary or advisable to have the Pledged Stock or
that portion thereof to be sold, registered under the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Pledgor will
--------------
cause the Issuer whose stock is to be so registered to (i) execute and deliver,
and cause the directors and officers of the Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus that, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause the Issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions that the Administrative Agent shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) that will satisfy the provisions
of Section 11(a) of the Securities Act.
<PAGE>
8
(b) The Pledgor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Stock by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers that will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if the Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this paragraph 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this paragraph 9 will cause irreparable injury to the Administrative Agent and
the Lenders, that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this paragraph 9 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants.
10. Limitation on Duties Regarding Collateral. The Administrative
-----------------------------------------
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar securities and property for its own
account. None of the Administrative Agent, the Syndication Agent, the Document
Agent or any Lender or their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so (except to the extent the same
constitutes gross negligence or willful misconduct) or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
12. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
9
13. Paragraph Headings. The paragraph headings used in this Pledge
------------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver; Cumulative Remedies. None of the Administrative
------------------------------
Agent, the Syndication Agent, the Documentation Agent or any Lender shall by any
act (except by a written instrument pursuant to paragraph 15 hereof) be deemed
to have waived any right or remedy hereunder. No failure to exercise, nor any
delay in exercising, on the part of the Administrative Agent or any Lender any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent, the
Syndication Agent, the Documentation Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Administrative Agent, the Syndication Agent, the Documentation
Agent or such Lender would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.
15. Waivers and Amendments; Successors and Assigns; Governing Law.
-------------------------------------------------------------
None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Administrative Agent, provided that any provision of this
--------
Pledge Agreement may be waived by the Administrative Agent in a letter or
agreement executed by the Administrative Agent or by telex or facsimile
transmission from the Administrative Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Administrative Agent, the Syndication Agent, the Documentation
Agent and the Lenders and their respective successors and assigns. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Notices. Notices by the Administrative Agent to the Pledgor, or
-------
the Issuer may be given by mail, by telex or by facsimile transmission,
addressed or transmitted to such person at its address or transmission number
set forth in subsection 13.2 of the Credit Agreement and shall be effective (a)
in the case of mail, three Business Days after deposit in the postal system,
first class postage pre-paid, and (b) in the case of telex or facsimile notices,
when sent, answerback received. The Pledgor and the Issuer may change their
respective addresses and transmission numbers by written notice to the
Administrative Agent.
17. Irrevocable Authorization and Instruction to Issuer. The Pledgor
---------------------------------------------------
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that the Issuer shall be
fully protected in so complying.
<PAGE>
10
18. Authority of Administrative Agent. The Pledgor acknowledges that
---------------------------------
the rights and responsibilities of the Administrative Agent under this Pledge
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Pledgor, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Lenders with full and valid authority so to act or refrain from acting, and
neither the Pledgor nor the Issuer shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
19. Integration; Acknowledgements. The Pledgor hereby confirms its
-----------------------------
agreement with subsections 13.10 and 13.13 of the Credit Agreement.
<PAGE>
11
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
DAL-TILE INTERNATIONAL INC.
By: /s/ Carlos E. Sala
-----------------------------------------------
Title: Vice President and
Chief Financial Officer
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The Issuer referred to in the foregoing Pledge Agreement hereby
acknowledges receipt of a copy thereof and agrees to be bound thereby and to
comply with the terms thereof insofar as such terms are applicable to it. The
Issuer agrees to notify the Administrative Agent promptly in writing of the
occurrence of any of the events described in paragraph 5(a) of the Pledge
Agreement. The Issuer further (i) agrees that it will comply with the terms of
paragraph 5(f) of the Pledge Agreement to the extent applicable to it and (ii)
agrees that the terms of paragraph 9(c) of the Pledge Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
------- --------
under or pursuant to or arising out of paragraph 9 of the Pledge Agreement.
DAL-TILE GROUP INC.
By: /s/ Carlos E. Sala
-----------------------------------------------
Title: Executive Vice President,
Assistant Secretary and
Chief Financial Officer
<PAGE>
SCHEDULE I
To Holdings
Pledge Agreement
----------------
DESCRIPTION OF PLEDGED STOCK
----------------------------
Percentage
Stock of
Class of Certificate No. of Issued
Issuer Stock No. Shares Shares
- ------ -------- ----------- ------ -----------
Dal-Tile Group Inc. Common 2 1,000 100%
<PAGE>
EXHIBIT 10.4
BORROWER PLEDGE AGREEMENT
-------------------------
PLEDGE AGREEMENT dated as of August 14, 1996 made by DAL-TILE GROUP INC., a
Delaware corporation (the "Pledgor"), in favor of THE CHASE MANHATTAN BANK
-------
("Chase"), as administrative agent (in such capacity, the "Administrative
- ------- --------------
Agent") for the lenders (the "Lenders") parties to the Credit and Guarantee
-------
Agreement, dated as of August 14, 1996 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Pledgor, DAL-TILE
----------------
INTERNATIONAL INC., a Delaware corporation ("Holdings"), the Administrative
--------
Agent, Credit Suisse, as Documentation Agent, Goldman Sachs Credit Partners
L.P., as Syndication Agent, and the Lenders.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make loans to, and the Issuing Bank has agreed to issue certain
letters of credit for the account of, the Pledgor upon the terms and subject to
the conditions set forth therein;
WHEREAS, the Pledgor is the legal and beneficial owner of the shares of
Pledged Stock (as hereinafter defined) issued by the Persons named under the
caption "Issuer" on Schedule I hereto;
WHEREAS, pursuant to subsection 7.10 the Pledgor is required to execute and
deliver this Pledge Agreement to the Administrative Agent for the ratable
benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the Lenders
to make their respective loans to, and the Issuing Bank to issue certain letters
of credit for the account of, the Pledgor under the Credit Agreement, the
Pledgor hereby agrees with the Administrative Agent, for the ratable benefit of
the Lenders, as follows:
1. Defined Terms. Unless otherwise defined herein, terms that are defined
-------------
in the Credit Agreement and used herein are so used as so defined; and the
following terms which are defined in the Uniform Commercial Code in effect in
the State of New York on the date hereof are used herein as so defined:
Accounts, Chattel Paper, General Intangibles and Instruments; and the following
terms shall have the following meanings:
"Code": the Uniform Commercial Code from time to time in effect in the
----
State of New York.
<PAGE>
2
"Collateral": the collective reference to the Pledged Stock and all
----------
Proceeds thereof.
"Issuer": with respect to any Pledged Stock, the Issuers from time to time
------
listed on Schedule I hereto as the issuer of such Pledged Stock.
"Pledge Agreement": this Pledge Agreement, as amended, supplemented or
----------------
otherwise modified from time to time.
"Pledged Stock": all of the shares of capital stock of the Issuers listed
-------------
on Schedules I hereto and all the shares of capital stock of any other Material
Subsidiary of the Pledgor organized in the United States now owned or at any
time hereafter acquired by the Pledgor or in which the Pledgor now has or may
from time to time acquire any right, title or interest, together with all stock
certificates, options or rights of any nature whatsoever that may be issued or
granted by the Issuer thereof to the Pledgor while this Pledge Agreement is in
effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of
--------
the Code on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock, and any and
all collections on the foregoing or distributions with respect to the foregoing.
2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to the
----------------------------------
Administrative Agent, for the ratable benefit of the Lenders, all of the
Pledgor's right, title and interest in the Pledged Stock and hereby transfers
and grants to the Administrative Agent, for the ratable benefit of the Lenders,
a first security interest in all of the Pledgor's right, title and interest in
all of the Collateral, as collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers; Endorsements. Concurrently with the delivery to the
--------------------------
Administrative Agent of each certificate representing one or more shares of
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor.
4. Representations and Warranties. The Pledgor represents and warrants
------------------------------
that:
(a) the shares of capital stock of each of the Issuers listed on Schedule
I hereto which are identified as Pledged Stock on said Schedule I constitute all
of the issued and outstanding shares of all classes of the capital stock of the
Issuers listed on Schedule I hereto which are owned by the Pledgor;
(b) all the shares of Pledged Stock have been duly and validly issued and
are fully paid and nonassessable;
<PAGE>
3
(c) the Pledgor is the record and beneficial owner of, and has good title
to, the Collateral, free of any and all Liens or options in favor of, or claims
of, any other Person, except the Lien created by this Pledge Agreement;
(d) upon delivery to the Administrative Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge Agreement
will constitute a valid, perfected first priority Lien on the Collateral
(except, with respect to Proceeds, only to the extent permitted by Section 9-306
of the Code), enforceable as such against all creditors of the Pledgor and any
Persons purporting to purchase any Collateral from the Pledgor except in each
case as enforceability may be affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing. No security agreement, financing statement or other
public notice with respect to all or any part of the Collateral is on file or of
record in any public office, except (i) such as may have been filed in favor of
the Administrative Agent pursuant to this Agreement and (ii) such as may be
terminated upon filing of termination statements delivered to the Administrative
Agent at the Closing Date; and
(e) the Pledgor's chief executive office and chief place of business, and
the place where the Pledgor keeps its records concerning the Collateral, is
located at: 7834 C.F. Hawn Freeway, P.O. Box 17130, Dallas, Texas 75217, or
such other location as the Pledgor shall inform the Administrative Agent in
accordance with subsection 5(e).
The Pledgor agrees that the foregoing representations and warranties shall
be deemed to have been made by it on each Borrowing Date by the Pledgor under
the Credit Agreement on and as of such Borrowing Date as though made hereunder
on and as of such Borrowing Date.
5. Covenants. The Pledgor covenants and agrees with the Administrative
---------
Agent and the Lenders, that, from and after the date of this Pledge Agreement
until the Obligations are paid in full, no Letters of Credit are outstanding or
not fully cash collateralized and the Commitments are terminated:
(a) If the Pledgor shall, as a result of its ownership of the Collateral,
become entitled to receive or shall receive any stock certificate (including,
without limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
promissory note or other instrument, option or rights, whether in addition to,
in substitution of, as a conversion of, or in exchange for any of the
Collateral, or otherwise in respect thereof, the Pledgor shall accept the same
as the agent of the Administrative Agent and the Lenders, hold the same in trust
for the Administrative Agent and the Lenders and deliver the same forthwith to
the Administrative Agent in the exact form received, duly indorsed by the
Pledgor to the Administrative Agent, if required, together with an undated stock
power or endorsement, as appropriate, covering such certificate, note or
instrument duly
<PAGE>
4
executed in blank by the Pledgor and with, if the Administrative Agent so
requests, signature guarantees, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Collateral upon the liquidation or
dissolution of any Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Obligations, and,
in case any distribution of capital shall be made on or in respect of the
Collateral or any property shall be distributed upon or with respect to the
Collateral pursuant to the recapitalization or reclassification of the capital
of such Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Obligations. If any sums of
money or property so paid or distributed in respect of the Collateral shall be
received by the Pledgor, the Pledgor shall, until such money or property is paid
or delivered to the Administrative Agent, hold such money or property in trust
for the Lenders, segregated from other funds of the Pledgor, as additional
collateral security for the Obligations.
(b) Without the prior written consent of the Administrative Agent and
except as permitted by, or not prohibited under, the Credit Agreement, the
Pledgor will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of such Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, or (iii) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title and
interest of the Administrative Agent and the Lenders in and to the Collateral
against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of the
Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will
promptly and duly execute and deliver such further instruments and documents and
take such further actions as the Administrative Agent may reasonably request for
the purposes of obtaining or preserving the full benefits of this Pledge
Agreement and of the rights and powers herein granted. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note, other Instrument or Chattel Paper, such note, Instrument
or Chattel Paper shall be immediately delivered to the Administrative Agent,
duly endorsed in a manner satisfactory to the Administrative Agent, to be held
as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Administrative Agent and
the Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Pledge Agreement.
<PAGE>
5
(e) The Pledgor will not, unless it shall give 45 days' prior written
notice to such effect to the Administrative Agent, (i) change the location of
its chief executive office or chief place of business from that specified in
Section 4(e) hereof, or remove its books and records from such location or (ii)
change its name, identity or structure to such an extent that any financing
statements filed by the Administrative Agent in connection with this Agreement
would become misleading.
6. Cash Dividends; Voting Rights; Interest Payments. (a) Unless an Event
------------------------------------------------
of Default shall have occurred and be continuing and the Administrative Agent
shall (unless such Event of Default is an Event of Default specified in
subsection 11(f) of the Credit Agreement, in which case no such notice need be
given) have given notice to the Pledgor of the Administrative Agent's intent to
exercise its rights pursuant to paragraph 7 below, the Pledgor shall be (i)
permitted to receive all cash dividends or distributions to the extent permitted
in the Credit Agreement in respect of the Pledged Stock and (ii) permitted to
exercise all voting, corporate, limited liability company and other rights of
ownership with respect to the Pledged Stock, provided, however, that no vote
-------- -------
shall be cast or corporate or limited liability company right exercised or other
action taken which, in the Administrative Agent's reasonable judgment, would
impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement or any of the other Loan
Documents.
(b) If an Event of Default shall have occurred and be continuing and the
Administrative Agent shall (unless such Event of Default is an Event of Default
specified in subsection 11(f) of the Credit Agreement, in which case no such
notice need be given) have given notice to the Pledgor of its intent to exercise
its rights pursuant to paragraph 7 below, (i) all dividends, interest payments
and other distributions (including cash) paid on or in respect of the Pledged
Stock shall be paid to and retained by the Administrative Agent as Collateral
hereunder (or if received by the Pledgor, shall be held in trust by the Pledgor
for the benefit of the Administrative Agent and the Lenders and shall be
forthwith delivered by it, and (ii) all voting, corporate, limited liability
company and other rights pertaining to the Pledged Stock, if any, shall be
exercised by the Administrative Agent.
7. Rights of the Lenders and the Administrative Agent. (a) If an Event
--------------------------------------------------
of Default shall occur and be continuing and the Administrative Agent shall
(unless such Event of Default is an Event of Default specified in subsection
11(f) of the Credit Agreement, in which case no such notice need be given) give
notice of its intent to exercise its rights hereunder to the Pledgor, (i) the
Administrative Agent shall have the right to receive any and all cash dividends,
distributions and payments or other income paid in respect of the Collateral and
make application thereof to the Obligations in such order as the Administrative
Agent may determine and (ii) all shares of the Pledged Stock shall be registered
in the name of the Administrative Agent or its nominee, and the Administrative
Agent or its nominee may thereafter exercise (A) all voting, corporate, creditor
and other rights, powers and privileges pertaining to such Collateral at any
meeting of shareholders of any Issuer or otherwise, and (B) any and all rights
of conversion, exchange, subscription and any other rights, privileges or
options pertaining to the Collateral as if it were the absolute owner thereof
(including, without limitation, the right to exchange at its discretion any and
all of the Collateral upon the merger,
<PAGE>
6
consolidation, reorganization, recapitalization or other fundamental change in
the structure of any Issuer, or upon the exercise by the Pledgor or the
Administrative Agent of any right, privilege or option pertaining to the
Collateral, and in connection therewith, the right to deposit and deliver any
and all of the Collateral with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine), all without liability except to account for property actually
received by it and except for its gross negligence or willful misconduct, but
the Administrative Agent shall have no duty to the Pledgor to exercise any such
right, privilege or option and shall not be responsible for any failure to do so
or delay in so doing.
(b) The rights of the Administrative Agent and the Lenders hereunder shall
not be conditioned or contingent upon the pursuit by the Administrative Agent or
any Lender of any right or remedy against any Issuer or the Pledgor or against
any other Person which may be or become liable in respect of all or any part of
the Obligations or against any collateral security therefor, guarantee therefor
or right of set-off with respect thereto. Neither the Administrative Agent nor
any Lender shall be liable for any failure to demand, collect or realize upon
all or any part of the Collateral or for any delay in doing so, nor shall the
Administrative Agent be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or any other Person or to take any
other action whatsoever with regard to the Collateral or any part thereof.
8. Remedies. In the event that any portion of the Obligations has been
--------
declared or becomes due and payable in accordance with the terms of the Credit
Agreement and such Obligations have not been paid in full, the Administrative
Agent, on behalf of the Lenders, may exercise, in addition to all other rights
and remedies granted in this Pledge Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Pledgor, any Issuer or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange or broker's board or
office of the Administrative Agent or any Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Administrative Agent, the Syndication Agent, the Documentation Agent
or any Lender shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is hereby waived or released.
The Administrative Agent shall hold any Proceeds hereunder for the benefit of
the Lenders as collateral security for the Obligations (whether matured or
unmatured), and/or the net proceeds of any such collection, recovery,
<PAGE>
7
receipt, appropriation, realization or sale, may then or at any time thereafter,
in the sole discretion of the Administrative Agent, be applied by the
Administrative Agent against the Obligations then due and owing in the following
order of priority:
FIRST, to the payment of all reasonable costs and expenses of every
kind incurred by the Administrative Agent in connection with this Pledge
Agreement, any other Loan Document or any of the Obligations, including,
without limitation, (i) all costs incidental to the care or safekeeping of
any of the Collateral or in any way relating to the Collateral or the
rights of the Administrative Agent and the Lenders hereunder, (ii) court
costs, (iii) the reasonable fees and disbursements of legal counsel and
agents to the Administrative Agent, (iv) any other reasonable costs or
expenses incurred in connection with the exercise by the Administrative
Agent of any right or remedy under this Pledge Agreement or any other Loan
Document and (v) without duplication, any amounts which are required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, to be paid by the Administrative Agent;
SECOND, to the ratable satisfaction of all other Obligations; and
THIRD, to the Pledgor or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same.
To the extent permitted by applicable law, the Pledgor waives all claims,
damages and demands it may acquire against the Administrative Agent, the
Syndication Agent, the Documentation Agent or any Lender arising out of the
lawful exercise by them of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition.
9. Registration Rights; Private Sales. (a) If the Administrative
----------------------------------
Agent shall determine to exercise its right to sell any or all of the Collateral
pursuant to paragraph 8 hereof, and if in the opinion of the Administrative
Agent it is necessary or advisable to have the Collateral, or that portion
thereof to be sold, registered under the provisions of the Securities Act of
1933, as amended (the "Securities Act"), the Pledgor will cause each Issuer
--------------
whose stock or note or membership interest, as the case may be, is to be so
registered to (i) execute and deliver, and cause the directors and officers of
such Issuer or the Pledgor, as the case may be, to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Collateral, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Collateral or that portion thereof to be sold, and (iii) make all amendments
thereto and/or to the related prospectus that, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable
<PAGE>
8
thereto. The Pledgor agrees to cause each Issuer to comply with the provisions
of the securities or "Blue Sky" laws of any and all jurisdictions that the
Administrative Agent shall designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) that will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) The Pledgor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Collateral by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers that will be obliged to agree, among
other things, to acquire such securities for their own account for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Collateral for the period of time necessary to permit any Issuer to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if such Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Collateral pursuant to this paragraph 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this paragraph 9 will cause irreparable injury to the Administrative Agent and
the Lenders, that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this paragraph 9 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants.
10. Limitation on Duties Regarding Collateral. The Administrative
-----------------------------------------
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar securities and property for its own
account. None of the Administrative Agent, the Syndication Agent, the
Documentation Agent or any Lender or their respective directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so (except to the extent
the same constitutes gross negligence or willful misconduct) or shall be under
any obligation to sell or otherwise dispose of any Collateral upon the request
of the Pledgor or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
<PAGE>
9
12. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Pledge
------------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver; Cumulative Remedies. None of the Administrative
------------------------------
Agent, the Syndication Agent, the Documentation Agent or any Lender shall by any
act (except by a written instrument pursuant to paragraph 15 hereof) be deemed
to have waived any right or remedy hereunder. No failure to exercise, nor any
delay in exercising, on the part of the Administrative Agent or any Lender any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent, the
Syndication Agent, the Documentation Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Administrative Agent, the Syndication Agent, the Documentation
Agent or such Lender would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.
15. Waivers and Amendments; Successors and Assigns; Governing Law.
-------------------------------------------------------------
None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Administrative Agent, provided that any provision of this
--------
Pledge Agreement may be waived by the Administrative Agent in a letter or
agreement executed by the Administrative Agent or by telex or facsimile
transmission from the Administrative Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Administrative Agent, the Syndication Agent, the Documentation
Agent and the Lenders and their respective successors and assigns. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Notices. Notices by the Administrative Agent may be given by
-------
mail, by telex or by facsimile transmission, addressed or transmitted to the
Issuers at their addresses or transmission numbers set forth in Schedule IV
hereto and to the Pledgor at the address or transmission number set forth in
subsection 13.2 of the Credit Agreement. Such notice shall be effective (a) in
the case of mail, three Business Days after deposit in the postal system, first
class postage pre-paid, and (b) in the case of telex or facsimile notices, when
sent, answerback received, addressed. The Pledgor and the Issuers may change
their respective addresses and transmission numbers by written notice to the
Administrative Agent.
<PAGE>
10
17. Irrevocable Authorization and Instruction to Issuers. The
----------------------------------------------------
Pledgor hereby authorizes and instructs the Issuers to comply with any
instruction received by it from the Administrative Agent in writing that (a)
states that an Event of Default has occurred and is continuing and (b) is
otherwise in accordance with the terms of this Pledge Agreement, without any
other or further instructions from the Pledgor, and the Pledgor agrees that the
Issuers shall be fully protected in so complying.
18. Authority of Administrative Agent. The Pledgor acknowledges that
---------------------------------
the rights and responsibilities of the Administrative Agent under this Pledge
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Pledgor, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Lenders with full and valid authority so to act or refrain from acting, and
neither the Pledgor nor the Issuers shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
<PAGE>
11
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
DAL-TILE GROUP INC.
By: /s/ Carlos E. Sala
-----------------------------------------------
Title: Vice President and
Chief Financial Officer
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned Issuers referred to in the foregoing Borrower Pledge
Agreement hereby acknowledge receipt of a copy thereof and agree to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. The undersigned Issuers agree to notify the Administrative
Agent promptly in writing of the occurrence of any of the events described in
paragraph 5(a) of the Borrower Pledge Agreement. The undersigned Issuers
further agree that the terms of paragraph 9(c) of the Borrower Pledge Agreement
shall apply to them, mutatis mutandis, with respect to all actions that may be
------- --------
required of them under or pursuant to or arising out of paragraph 9 of the
Borrower Pledge Agreement.
DAL-TILE CORPORATION
By: /s/ Carlos E. Sala
----------------------------------------------
Title: Executive Vice President,
Assistant Secretary and
Chief Financial Officer
<PAGE>
SCHEDULE I
to Borrower
Pledge Agreement
----------------
DESCRIPTION OF PLEDGED STOCK (DOMESTIC SUBSIDIARIES)
----------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Class Stock Total No. of Shares Shares
of Certificate Outstanding Owned by Owned by
Issuer Stock No. Shares the Pledgor the Pledgor
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dal-Tile Corporation Common 1 500 500 50%
Dal-Tile Corporation Common 2 500 500 50%
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE IV
To Borrower
Pledge Agreement
----------------
SCHEDULE OF ISSUERS
-------------------
Dal-Tile Corporation
7834 C.F. Hawn Freeway
P.O. Box 17130
Dallas, Texas 75217
Attention: Carlos E. Sala
Telecopy: (214) 309-4390
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 4,331 4,331
<SECURITIES> 0 0
<RECEIVABLES> 125,412 125,412
<ALLOWANCES> 9,056 9,056
<INVENTORY> 127,282 127,282
<CURRENT-ASSETS> 275,924 275,924
<PP&E> 184,100 184,100
<DEPRECIATION> 47,139 47,139
<TOTAL-ASSETS> 645,158 645,158
<CURRENT-LIABILITIES> 92,223 92,223
<BONDS> 0 0
0 0
0 0
<COMMON> 121 121
<OTHER-SE> 101,933 101,933
<TOTAL-LIABILITY-AND-EQUITY> 645,158 645,158
<SALES> 184,386 535,910
<TOTAL-REVENUES> 184,386 184,386
<CGS> 93,784 277,240
<TOTAL-COSTS> 153,314 468,677
<OTHER-EXPENSES> 352 805
<LOSS-PROVISION> 1,444 4,298
<INTEREST-EXPENSE> 10,817 38,260
<INCOME-PRETAX> 20,300 29,698
<INCOME-TAX> 7,125 10,668
<INCOME-CONTINUING> 20,300 29,698
<DISCONTINUED> 0 0
<EXTRAORDINARY> 29,072 29,072
<CHANGES> 0 0
<NET-INCOME> (15,897) (10,042)
<EPS-PRIMARY> (0.31) (0.21)
<EPS-DILUTED> (0.31) (0.21)
</TABLE>
